Afternoon analysis 22.01.2018

22.01.2018 15:55|Bartosz Grejner

A relatively calm afternoon session. The EUR/USD pair remained around 1.2250. Due to the lack of scheduled macroeconomic publications, reports from the USA may be the most important today. The zloty unchanged but possible dollar appreciation may weaken the Polish currency.

Monday's changes at stake

Despite relevant events that happened during the weekend, Monday's session in the currency market was relatively calm. The so-called "government shutdown" (a break in funding of some federal institutions) took place in the US. Theoretically, it is not good news for the dollar, however, even today we may witness the vote for temporary funding.

Also Sunday's vote by SPD delegates in Bonn to support the coalition talks on GroKo (great coalition with the CDU/CSU) was the core scenario. As a result, the changes in the main currency pair were limited. Shortly after midnight, the EUR/USD quotations rose to 1.2270 and returned to Friday's level of 1.2220 in the following hours. Moreover, since the beginning of the European session, the exchange rate appreciated to about 1.2250 (the level around which it has been oscillating in the past few days).

The calendar of scheduled events in the following hours is practically empty, therefore investor attention may be focused on US events. A vote on temporary funding could somewhat strengthen the US currency and depreciate the EUR/USD pair. The reverse situation may take place regarding a further deadlock in talks between the Republics and Democrats.

Stable situation on zloty

No crucial changes in the main currency pair's quotations and the empty macroeconomic calendar have caused limited changes in the zloty value. The EUR/PLN stayed around 4.17, while the EUR/USD growth rate near 1.2250 pushed the USD/PLN again below 3.41.

The pound in relation to the zloty gained 0.3% around 3.00 p.m. It was caused by the French President an interview for the BBC where he slightly relaxed his stance towards the UK and a potential agreement. The GBP/PLN rate rose to about 4.745, the highest level in 12 days.

Considering today's market situation, events in the US can have the greatest impact on the zloty. A vote of temporary funding for federal institutions could slightly strengthen the dollar and weaken the entire zloty basket. However, potential changes in rates appear to be limited.

The most important event this week is Thursday's statement and the conference following the ECB meeting. The dovish message from the ECB could not be negative to the zloty but combined with a significant fall in the EUR/USD exchange rate, the Polish currency could be a subject to downward pressure.

Tomorrow's preview

At 11.00 a.m., the ZEW Institute will publish January's ZEW economic index, including the German economy and the eurozone. In recent months, indexes for both regions have moved in a lateral trend. However, unlike the analogical consumer (GfK) and entrepreneurs (ifo) climate index, the ZEW index for these two regions are far from historical highs.

The median of market expectations indicates an increase in both indexes to 17.8 points and 30 points for Germany and the eurozone respectively. Current events ("shutdown" in the USA, SPD's support for negotiations with Angela Merkel) cause that the main currency pair quotations can be subject to relatively large fluctuations.

The ZEW index readings for the single currency area and its largest economy could lead to modest appreciation of the euro. As a result, this could result in a slightly better zloty condition, as the improving condition in the euro area has recently been supporting the Polish currency. The changes in zloty valuation are unlikely to be significant, as market attention may focus mainly on the ECB on Thursday.


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