Afternoon analysis 21.02.2017

Positive data from the euro zone did not support the euro. Mixed quotations of the zloty. Increasingly more companies from the Polish industrial sector is positive regarding the business cycle in February.

Limited impact of PMI

Very positive PMI data from both Germany and the euro zone was not enough to support the euro. The EUR/USD lost approximately 0.7% and was pushed towards the level of 1.05.

The euro continues to wear-off due to the mild monetary policy from the European Central Bank, which most likely will not change by the end of 2017. This causes the economic data to have a limited impact on the euro. However, the dollar gained value, most likely due to tomorrow’s minutes from the FOMC, which are estimated to be hawkish.

Positive condition of the dollar caused that the USD/JPY went above the level of 113.50. Moreover, the GBP/USD went above 1.24. This caused the dollar’s index (DXY) to reach the level of 101.5 points.

Euro and dollar

The zloty continued its appreciation from this morning. The EUR/PLN went below 4.31 and the CHF/PLN went below 4.05. However, the zloty remains weak against the globally stronger dollar. The USD/PLN is near the level of 4.09. This pair didn’t exceed the 4.10 level, because the dollar’s appreciation slowed down. This is because profitability of the American two-year treasury bonds remains at the same level as it was this morning (1.21%).

The Polish Central Statistical Office published the report regarding the Polish business cycle. This index was considered positive by the industrial sector entrepreneurs, because 16.4% of think that it’s been improving and 11.9% thought the opposite. This gives the balance at the level of positive 4.5 (negative 2.7 in January). This may be a positive signal for the industrial production reading for February, which is estimated to reach the level of 3% YoY by the Ministry of Finance.

Tomorrow's events

At 10.30, the Office for National Statistics will present the second reading regarding the British GDP growth for the fourth quarter. This publication most likely will not be significantly inconsistent with the initial reading (2.2% YoY). Since the Brexit referendum, the pound has been sensitive to the economic data. Therefore, we may expect increased fluctuations, if this reading is inconsistent with the initial data.

At 11.00, Eurostat will publish the second reading regarding the euro zone’s CPI for January. The initial reading indicated a 1.8% YoY, which was its best result in approximately four years. This was mainly a result of an increase in the oil prices. The baseline inflation increased 0.9% YoY. Currently, the European Central Bank conducts a mild monetary policy. Therefore, this data will most likely have a limited impact on the euro.

At 20.00, the Federal Reserve will publish the minutes from its previous meeting. Investors expect that it’s message will be hawkish, hence positive for the dollar. It’s possible that the FOMC members were discussing the monetary tightening, as well as the impact of the fiscal policy on the future interest rates.