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Afternoon analysis 20.10.2017

20 Oct 2017 15:38|Bartosz Grejner

The dollar remained strong, but its appreciation has been stopped so far. This, in turn, improves the zloty's situation, which was in a better condition in the second part of the day. The Polish currency may be threatened by worsening of the market sentiment, although the risk of a more significant depreciation is rather limited.

Zloty pared some losses

The second part of the day started positively for the zloty. The Polish currency was paring the losses incurred until midday. Today, one euro cost 4.248 PLN around 11.00 a.m., and around 3.00 p.m. it cost 4.232 PLN. The price per franc also fell to approx. 3.65 PLN, approaching, by almost 1 gr, the lowest level since mid-January 2015, which was reached during the Asian session today (in CET time at night).

A better condition of the zloty could be observed with relation to the local forint. The Hungarian currency was losing about 0.2%, while it appreciated by 0.1% in the morning. The zloty continued to lose 0.4% - 0.5% compared to the globally stronger pound and the dollar today, but the range of losses was smaller than in the morning.

The zloty could gain while the US currency stopped appreciating - the dollar index (DXY) reached its highest value today (approx. 93.5 points) before midday and in the following hours it wasn’t able to pass that mark. In the calendar of scheduled events for today there are no significant publications, Therefore the further condition of the zloty will most probably be the outcome of the US main markets behaviour and the dollar.

There is a significant probability that market indexes in the US may lose value (much worse than the expected results of General Electric, shares lost 7% in pre-session trading). In such a scenario, risk aversion could increase slightly and emerging currencies may lose on it, including the zloty. However, the likelihood of a significant depreciation of the Polish currency seems to be limited - relatively good macroeconomic data will remain to support it.

Probably in the evening, the S&P Global rating agency will release the decision regarding the Polish rating. The macroeconomic situation in Poland has been so good that the risk of a negative surprise seems to be unlikely. It is even possible to increase the perspective, taking into account the current economy's condition. However, this publication will probably have a limited impact on the zloty.

Next week's preview

On Tuesday, IHS Markit will publish the preliminary data on PMI indexes in industrial and service sectors for France, Germany and the eurozone as a whole. Now, the median of expectations points to readings close to those from September - the eurozone economy has probably continued to grow at a good pace, therefore, the probability of unfavourable PMI readings (and a significant weakening of the euro) seems to be limited.

Wednesday, in turn, can be an important day for the pound. At 10.30 a.m. preliminary data on the economic growth pace in the UK in Q3 will be published. Currently, the market consensus indicates the dynamics of growth in Q3 at the 1.4% level year-on-year. A fall below this level would mean the lowest growth pace for more than four years and could put significant pressure on the British currency.

On Thursday, there will probably be the most important event of the week - the European Central Bank's statement and conference after the monetary committee meeting. Although changes in both interest rates and asset purchase program are not expected, it is possible that the reduction of the latter may be suggested. The ECB's monetary tightening is expected in 2018, however, the reduction scale may decide whether the euro will appreciate or loose in the short term. Therefore, significant fluctuations may be expected around the time of the statement publication and conference by Mario Draghi.

The last day of the next week may also have a significant impact on currency exchange quotations. Preliminary data on the GDP growth pace in Q3 will be published. The consensus suggests that the US economy developed at a pace of 2.6% (annualised). Exceeding this level may result in an increase of the yields of the US Treasury bonds, the dollar's appreciation and, as a result, have a negative impact on the emerging countries' currencies, including the zloty.


20 Oct 2017 15:38|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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