Afternoon analysis 22.03.2017

The American currency remains weak today and the EUR/USD is still near the 1.08 level. The zloty remains in a relatively positive condition, due to a relatively positive sentiment towards the emerging market currencies.

Dollar remains weak

Recently, the dollar hasn’t been receiving too many arguments for growth. The only macroeconomic reading that could have impact on the dollar was the ECB data regarding the current account for January. This index appeared to be 5 billion euros below the consensus (24.1 billion euros) and achieved the worst result in more than one year.

This data might have caused the EUR/USD to remain near the 1.08 level. The yen benefited from the dollar’s worse condition and the USD/JPY was pushed to the area of 111. However, a strong yen is not favorable for the Japanese economy, which has mainly been set to export.

The Japanese central bank has been conducting a very mild monetary policy, in order to support the economic revival. Today, Haruhiko Kuroda, the Bank of Japan chair, ensured the parliament that the bank is determined to sustain its mild monetary policy until the desired inflation goal has been reached.

The oil market was determined by a negative sentiment as well. Yesterday, the API presented the data regarding the American oil supply (4.5 million barrels per day). The WTI crude oil prices are below 50 dollars per barrel and the Brent oil prices were testing this level today. At 15.30, we will receive the weekly report from the oil market, which will include data regarding American oil production.

If the supply growth is above the consensus (positive 2.8 million barrels per day), this may increase the oil overvalue. Lower oil prices translate to lower inflation pressure. This would be negative for the dollar because lower inflation pressure would reduce the likelihood of rate hikes in the USA for 2017.

Zloty is relatively stable

Today, the zloty was slightly weaker, due to slightly worse global sentiment. However, constantly positive sentiment towards the emerging market currencies prevented the Polish currency from larger depreciation. The PLN/HUF remained near the level of approximately 72.1. The franc gained due to negative global sentiment because it is considered by one of the safe havens. Therefore, the CHF/PLN returned above the 4.00 level.

The above mentioned overvalue in the oil market may appear to be a negative indicator for the zloty, regarding the dovish signals from the Monetary Policy Council. During his previous press conference, the Council’s chair, Adam Glapiński, suggested that there may be no rate hikes until 2018. Lower inflation pressure may increase the likelihood of sustaining this scenario and would be negative for the zloty’s evaluation.

Tomorrow’s events

At 10.30, the Office for National Statistics (ONS) will publish data regarding British retail sales for February. This index has been gradually decreasing since October 2016. In January, it achieved its lowest level in three-and-a-half years (1.5% YOY). Currently, the market consensus is at the level of 2.6% YOY.

Taking into consideration that the retail sales indicate consumption, which is a significant element of economic growth, this reading may increase the pound’s fluctuations significantly. The British currency has recently been relatively volatile due to the Brexit process, as well as to hawkish signals from the Bank of England.

At 13.30, the American Labor Department will publish the weekly jobless claims. Three weeks ago, this index went down to its forty-four year minimum (223k). Even though it increased in two following weeks (243k and 241k, respectively), it has remained near its recent record. Currently, the market consensus is at the level of 240k.

Tomorrow’s reading from the American Labor Department may increase the dollar’s fluctuations. The depreciation potential seems to be limited. However, if the reading is better than expected, the dollar may gain value.

At 13.45, Janet Yellen will make her testimony in Washington D.C. We don’t expect Yellen’s statements to change the current plan for rate hikes in 2017, but the dollar may be significantly volatile during her testimony. Currently, the market consensus estimates three rate hikes for 2017 (including the one from this month), which is consistent with the FOMC plan.