Afternoon analysis 16.05.2017

Another portion of positive information from the eurozone has supported the euro. The zloty remains in a positive condition. Can tomorrow’s press conference from the MPC endanger quotations of the Polish currency?

Positive data from eurozone

Today, we have received new positive data from the eurozone. The trade balance surplus in March was at the level of 30.9 billion euros, which was more then 4 billion euros better than expected. Moreover, this was the highest surplus since July 2015. Both export and import increased (13% and 14%, respectively). Growth of this indexes in the case of the entire EU was even larger (export: 16%; import: 14%).

More positive data came from the ZEW institute. The economist sentiment index for May increased to its highest level since August 2015. Even though the increase in the case of Germany was minor, the subindex of the current conditions evaluation was at its highest level in approximately six years. This helped to sustain the positive trend towards the euro.

The euro has been strengthening against the dollar since the morning. The EUR/USD is nearing the 1.11 level. This caused the dollar’s index to be pushed to the area of 98 points.

The dollar has not been supported by the data from the American real estates market. In April, the index of permissions for house building decreased by 2.5% MoM and the index of initiated investments decreased by 2.6% MoM. Both of these results were worse than expected.

Zloty remains strong

This morning, the zloty increased its recent records against the franc or the dollar. However, during the day the Polish currency went away from its morning results, in spite of a positive GDP reading for the first quarter. This didn’t concerned the zloty’s relation against the dollar and pound. Both the USD/PLN and GBP/PLN were wearing-off clearly, due to the global weakness of both of these currencies.

Tomorrow’s press conference from the Monetary Policy Council may appear essential for quotations of the zloty. If the Council continues its dovish attitude towards the monetary policy, this would endanger the sentiment towards the zloty. However, the likelihood of a more durable deterioration of the sentiment seems limited.

Tomorrow’s events

At 10.30, the Office for National Statistics (ONS) will publish the data from the British labor market. This will include the unemployment rate for March, changes in the amount of unemployed for April and changes in the average employment rate. The unemployment rate has been near its twelve-year minimum and reached the level of 4.7% in February. However, the amount of unemployed has been fairly volatile over the past few months. In January, this index decreased by 41.4k, only to increase 25.5k in March.

Therefore, the market will most likely focus on the average wage for March. This index increased 2.3% over the past few months, whereas its growth in November was at the level of 2.8%. Inflation for March was also at the level of 2.3%. However, today’s data from the ONS showed that inflation for April was at the level of 2.7%. Tomorrow’s inflation data may appear essential in regard of expectations towards a sooner monetary tightening. The market consensus for the average wage index in March is at the level of 2.4% YOY. If the result is lower, this would wear-off the pound.

Also tomorrow, the Monetary Policy Council will make its decision regarding Polish interest rates. Even though no changes are expected, both the announcement from the meeting and the press conference (at 16.00) might be significant for the zloty. After a better than expected CPI reading yesterday and the positive GDP growth published today, the Council may slightly change its attitude towards the future monetary policy. Taking into consideration how high the zloty has been against the main currencies, its appreciation potential seems more limited than its depreciation potential. If the Council’s message remains dovish, this would wear-off the zloty. In the opposite case, the Polish currency may strengthen slightly.