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Afternoon analysis 21.12.2015

21 Dec 2015 18:05|Marcin Lipka

The EUR/USD gained after comments from the German central bank president. The oil price dropped to the lowest level in 11 years. The Polish currency increased more than other emerging market currencies.

In the second part of session, the EUR/USD gained. However, the move was not caused by a deterioration on sentiment. The European stocks indexes and the US futures gained. Today's comments from German Central Bank President Jens Weidmann would have influenced the markets.

The Bundesbank President said in the Wirtschaftswoche magazine that the eurozone economy will accelerate in the next year (according to Reuters). Nevertheless, the improvement will not be strong enough to result in lower unemployment. With respect to the monetary policy Weidmann wrote the eurozone countries should cut debt but they are not willing to limit deficits. He warned that the situation creates illusion of debt sustainability and it will be tested when the interest rates would increase.

In Spain the People's Party won in general elections. However, Prime Minister Mariano Rajoy's party lost one third of its supporters in the parliament. As a result, it will need a coalition partner. The results leave a wide array for speculations. Although a Greek-like scenario is not very probable, the pace of reforms may decline as more parties are against austerity. This factor would negatively affect the EUR/USD, if the negotiations regarding the coalition are prolonged.

Oil at new lows

On Monday, the oil price in London dropped to the lowest level since 2004. The factor that pushed the commodity lower were speculations that oil producers are going to keep current output levels to preserve market share. Moreover, Bloomberg said that oil producers are now focused on cost cutting to remain profitable.

Given the situation, the commodity currencies dropped. After a brief increased on Friday, today the Russian rouble declined. The USD/RUB hovered above the record 71 level. Moreover, the Norwegian crown and the Canadian dollar dropped.

Strong zloty

On Monday the emerging market currencies were quite steady. The zloty performed better than other currencies. The Polish currency increased against all its major pairs. The dollar dropped below 3.90 zlotys. The pound fell below 5.80 zlotys, the lowest level since the end of October. The euro dropped to 4.23 zlotys, the lowest level since the end of November.

One factor that could have supported the zloty was improvement in the economic data. Last week, the CSO said the labor market continued to improve. Moreover, the reports on retail sales and industrial production were above the forecast.

The second positive factor, could have been the government's budget plan that set the deficit level at 2.8 percent GDP. It has been a signal that although the government is willing to increase social spending, it is not going to drop the fiscal discipline.

Since the beginning of October the zloty was clearly weaker than other regional currencies, which was caused by the heightened political risk. In that period the economic reports were also weaker. However, the factors have lost their impact and the situation may result in a stronger zloty.

21 Dec 2015 18:05|Marcin Lipka

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.

See also:

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