Afternoon analysis 23.05.2017

A calm session on the currency market – better than expected data from the euro zone had a limited impact on the euro. Positive data from Europe helped maintain a good sentiment for zloty – the Polish currency traded today in a relatively narrow range.

EUR/USD still below 1.12

Today’s trading on the currency market was relatively calm up until 3 p.m. The US currency was in a weaker state: the dollar’s index (DXY) oscillated just below 97 points. There was some good news from the eurozone and Germany in the form of positive PMI data – the biggest economy in Europe saw also its Business Climate Index climb to the highest level ever recorded (since 1991). Although it initially caused the euro to appreciate and the EUR/USD to go up, the next hours of trading saw the EUR/USD decline close to the 1.12 boundary.

A slightly less optimistic news came from the UK – CBI published the results of retailers survey. It was conducted on 117 British retailers and it showed that placed orders fell on a year ago, after a sharp pickup in April. Retail sales also didn’t surprise on the positive side: 27% of respondents said sales were down while only 29% said they increased. That gave a balance of +2%, while a +10% was expected – it was also the lowest balance since January. Immediately after the CBI report, the pound fell, however, the trading range was relatively narrow: the GBP/USD pair decreased from 1.30 to about 1.297.

Later today (at 3.45 p.m.), the PMI data regarding the US economy will also be published. With regards to the US economy, the ISM data are more important, however, taking into account no other major macroeconomic events planned for today, the PMI data could increase the level of dollar volatility. The median of expectations currently points to readings higher than a month ago. Should today’s US PMIs turned out to be better than a month ago, especially higher than the market consensus, they could give the dollar a bit of support and caused the EUR/USD pair to fall below the 1.12 level.

Zloty’s narrow range

The Polish currency traded calmly today – the range of fluctuations stayed quite narrow. The EUR/PLN oscillated around the 4.20 level and USD/PLN between 3.73 and 3.74. Today’s USA PMI data could theoretically threaten zloty’s recent gains. If they turn out to be better than expected, a slight correction of the Polish currency could be possible.

One has to remember, though, that in the case of the US economy, the PMI readings could have a limited impact on the dollar, even if they are positive. Therefore, significant volatility should not be expected. Political issues regarding the new budget and how the US congress will react to Trump’s plan could have a potentially higher impact. On Friday, the second US Q1 GDP growth rate will be published and could also have a substantial impact on the dollar’s trading – especially in the case of a significantly higher (above 0.2 pp) than expected preliminary reading (+0.7% q/q).

Tomorrow’s preview

GfK will publish at 8 a.m. tomorrow the German Consumer Climate index. There’s been an upward trend in the index since September 2008 – and last month it reached 10.2 points, equalling nearly 16 years highs. The market consensus points to a 10.2 point reading for this month, however, it’s probable that a new record will be set. Today, the Ifo institute, published the German Business Climate Index which reached the highest level ever recorded (since 1991); also, PMI readings turned out to be better than expected (apart from the services sector in which case they were only slightly below the market consensus). It increases the probability that the consumer climate index will be higher as well.

The US Federal Reserve will publish the last FOMC meeting’s minutes at 8 p.m. Taking into account dollar’s recent slump, this publication could spark an increase in trading volatility. Some investors could speculate that the minutes could have a more hawkish tone which could strengthen the dollar. This suggests that the aforementioned minutes will probably be meticulously analysed in an attempt to find any suggestion that could indicate a faster tightening of the monetary policy. However, the record of the May FOMC meeting will probably have a limited impact on the dollar in the end. The market sentiment still seems to be focused more on political issues.