Afternoon analysis 22.08.2016

The EUR/USD is returning above the 1.1300 level. Tomorrow's PMI readings from the euro zone should be free of the Brexit impact. Revision of macro projections from the Ministry of Finance is neutral for the PLN.

The main currency pair started moving towards the 1.1300 level in the afternoon. Just as we suggested in today's Daily analysis, Stanley Fisher's presentation was not hawkish enough to change the market's approach towards the perspective of monetary tightening in the USA.

The behavior of the American two-year treasury bonds confirms this theory. During the opening of the Asian session they went up to the 0.78% area. This was their highest growth since the British referendum. However, the tendency has turned during the following hours. Currently the two-year bonds are below 0.74%, which is lower than they were at the closing on Friday.

As a result, we are returning to a starting point, just as if Fisher's statement was not published at all. It is most likely that the market will avoid more sudden moves before Janet Yellen's testimony on Friday.

PMI indexes

Recently, the PMI indexes from the euro zone have had a minor impact on evaluation of the euro. Most likely it's because that the ECB monetary policy should not be clearly modified within the forthcoming months, except for extending purchase of assets beyond March 2017.

However, the August data should indicate whether the matter of British referendum has had any impact on the condition of services, as well as industry of the euro zone. After all, the past month's data showed that Brexit did not spoil the sentiment of managers who were surveyed by IHS Markit. However, it is the August's reading that may be considered as totally free of the referendum impact.

Economists estimations are relatively positive. PMI reading consisting of services and industry from the euro zone is to remain in the area of 53 points. This is still above the 50 level that separates progress from regress. If this data is confirmed, the development of the euro zone will be consistent with the previous estimations for the time being.

Making forecasts real

Theoretically, a reduction of economic growth by the Ministry of Finance (MF) from 3.8% (estimated in Covergence Program from April) to 3.4% y/y for this year, as well as a decrease in estimations for 2017 from 3.9% to 3.6% y/y is a negative information.

However, nobody in the market believed these optimistic forecasts, especially after quite a weak second quarter. In the Inflation Projection from July, the NBP estimated that the GDP will grow by 3.2% this year and by 3.5% in 2017. Making the forecasts of both institutions (MF and NBP) real may be considered as positive. This is because basing on excessive indexes would increase the risk of exceeding a three-percent limit of public finance sector deficit, against the 2017 GDP. This information is neutral regarding the currency market. The EUR/PLN should be near the 4.30 level in the forthcoming hours.