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Afternoon analysis 16.11.2017

16 Nov 2017 15:19|Bartosz Grejner

The better sentiment on the market, the EUR/USD pair remained below the 1.18 boundary. The zloty appreciated due to improving sentiment - the weaker condition of the franc made the CHF/PLN pair approach the lowest level since mid-January 2015.

Dollar slightly stronger

Yesterday, during the afternoon session, the dollar pared some losses. Today this trend has continued since the morning, although its scale has been rather limited. Since the beginning of the European session until 3 p.m., the EUR/USD quotations moved within a narrow range of 1.1760-1.1800, but when the US trading started, the dollar started to decline. There may be concerns in the market that problems with the introduction of tax reform in the US may continue to contribute to the dollar's depreciation.

The mixed data from the Department of Labor regarding jobless claims also did not help the US currency. Admittedly, the number of insured unemployment has decreased last week to 1.86 million people (against an expectation of 35k more), which was the lowest level in nearly 44 years, the data on jobless claims have failed slightly. They amounted to 249k last week -by 10k more than a week earlier and 14k more than the market consensus.

Shortly before the US trading session, the dollar's quotations were falling - the price of the main currency pair, the EUR/USD, rose from around 1.1760 to 1.1780. However, a relatively good sentiment on the market is observed- futures contracts for major stock indexes in the US indicate opening above yesterday's closing level.

If this sentiment persisted, we would probably have to deal with the dollar's stabilisation in the following hours. The data's publication on industrial production in the US may add a little volatility to its quotations. Although, in order to influence the exchange rate of the US currency, its reading would probably have to deviate significantly from market consensus (at least by 0.2 percentage points).

Zloty slightly stronger

During Thursday's quotations, the Polish currency was in a better condition. The zloty strengthened significantly in relation to the franc - the CHF/PLN quotations dropped even by 0.5% to approx. 3.62. This is very close to the lowest rate since the second half of January 2015, when SNB released the peg to the Swiss currency. However, this movement was also caused by the globally weaker franc today, which was also losing in relation to the euro, the dollar or the yen. This was influenced by the better sentiment on the market observed today, the main European market indexes increased and the dollar appreciated.

The EUR/PLN exchange rate returned to the 4.23 - 4.24 quotation range. The following hours will probably be relatively calm for the zloty - in case of improved sentiment, it may gain slightly. At 3.15 p.m., the Federal Reserve will publish data on industrial production for October in the USA.

If the data significantly exceeds market expectations (+0.5% headline index; +0.6% manufacturing production; MOM) we could have to deal with the continuation of USD/PLN rate increases above the 3.60 level. However, the probability of significant increases is limited by uncertainties related to the implementation of tax reform in the US.

Tomorrow's preview

At 10.00 a.m., the European Bureau of Statistics (Eurostat) will publish the current account data of the eurozone in September. August's surplus (seasonally adjusted) of 33.3 billion EUR turned out to be 7 billion higher than expected and at the same time the highest since March this year. The median of expectations indicates a reading of 30.2 billion EUR.

Given the recent relatively large fluctuations of the euro and the weakened dollar (problems with the implementation of tax reform), September's reading above consensus and close to August's surplus could slightly strengthen the euro. However, this data is rather secondary in terms of their impact on the single area currency's quotations, therefore, the potential appreciation is rather limited.

At 2.00 p.m., the Polish Central Statistical Office (GUS) will present data on average wages in the Polish enterprise sector in October. Employment growth pace was between 4.5% and 4.6% per annum this year, except for 4.3% in June. On the other hand, wage growth pace accelerated markedly: in January it amounted to 4.3%, while in August 6.6% and in September 6.5%.

The median of expectations indicates an increase in employment by 4.5% in October, and the average wage by 6.5% (in relation to October last year). Data at this level or slightly higher, especially in the case of wages, could confirm the good condition of the Polish labour market and slightly strengthen the zloty. A higher wage reading could also imply higher inflationary pressures, slightly increasing the likelihood of rate hikes before the end of 2018 (also a positive signal for the zloty).


16 Nov 2017 15:19|Bartosz Grejner

This commentary is not a recommendation within the meaning of Regulation of the Minister of Finance of 19 October 2005. It has been prepared for information purposes only and should not serve as a basis for making any investment decisions. Neither the author nor the publisher can be held liable for investment decisions made on the basis of information contained in this commentary. Copying or duplicating this report without acknowledgement of the source is prohibited.

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