Afternoon analysis 23.08.2017

23.08.2017 15:04|Bartosz Grejner

Trading hours have indicated the euro's appreciation after the morning’s positive surprise in PMI for the industry. The pound and the dollar have been under the pressure - investor's attention may be focused on PMI reading in the USA. The Polish currency has been in a slightly worse condition, although the volatility has not been large.

The euro has been on the rise

Today, the euro's appreciation has been observed after better than expected PMI readings for the eurozone, Germany and France - especially for the manufacturing sector. The euro has gradually gained in value after these publications as the EUR/USD pair has surpassed the 1.18 boundary around 2.00 p.m again.

The euro's appreciation weakened the American and British currencies. The dollar index has fallen from 93.6 pts to approx. 93.1 pts, although the dollar has also been significantly affected by the yen's appreciation. The USD/JPY rate has again been lowered to near the 109 boundary. The pound is still under pressure. Despite the aforementioned drop of the dollar, the GBP/USD pair is still close to the boundary.

On the other hand, after the EUR/GBP pair crossed the 0.92 level in the afternoon, it has been gradually increasing in the following hours to 0.922 at around 2:00 p.m., marking new multi-year highs (excluding the "flash crash" events).

The publication that may affect the currency market will be one about the PMI of the manufacturing and services sector in the US. While the US economy has been relatively more sensitive to ISM readings, when looking at the euro's PMI fluctuations in the morning for the eurozone, the significant dollar's volatility may be expected in case of major deviations from the consensus. This currently points to 53.3 points for manufacturing and 54.9 points for services.

The zloty incurred slight losses

The aforementioned global weakness of the dollar and the pound made the USD/PLN and the GBP/PLN rates move slightly below yesterday's levels. Considering today's weakness of both currencies, changes in the zloty's favor have been relatively small. This is due to the weaker condition of the zloty, which may be sensitive to a slightly worse market sentiment (i.a. decreases of main European indexes, appreciation of the yen, the franc and gold).

The EUR/PLN has risen close to 4.29, which has been the upper limit of the trading range in the last week. The CHF/PLN traded at a somewhat higher rate as well - in the morning, the rate was at 3.745, while at around 3.00 p.m. it was over 3.76.

Today's data confirmed the good condition of the eurozone's industry and should support the zloty. However, the slightly bigger risk aversion that has been observed during today's session has been offsetting this potentially positive effect on the zloty. PMI data from the US and US stock market trading may be key data today.

If indexes gain in value and the sentiment improves and the dollar will not strengthen much, the zloty may then gain. In the case of the absence of clear sentiment changes and PMI readings close to the consensus, the zloty's exchange rate should not change significantly.

Tomorrow's preview

At 10.30 a.m., the Office for National Statistics (ONS) will present the UK's GDP data on growth pace in Q2. This will be the second reading, therefore, the probability of significant deviations from the first one has been relatively limited. However, if tomorrow's reading would diverge from the preliminary data and consensus (1.7% YOY, 0.3% QOQ), significant pound's fluctuations would be likely to occur - especially in the context of today's exchange rate's depreciation in relation to the eurozone's PMI data.

The US Department of Labor, at 2.30 p.m., will publish a weekly report on initial jobless claims. According to a report from last week, initial jobless claims have been 232k. It has been at the lowest level since the turn of February and March when the lowest reading of in 44 years (223k) has been recorded. For this week, the market consensus points toward a reading of 238k.

On the other hand, the insured unemployment will most likely be below 2 million (19 weeks in a row) - the median of expectations has pointed to a reading close to one from last week (1.95 million). This data has been generally seen as second-tier in the context of its impact on the dollar. However, given the recent weakness of the US currency and the absence of significant macroeconomic publications, another solid data from the Department of Labor could slightly strengthen the dollar.

Tomorrow, the economic conference in Jackson Hole (USA) will also start, with the presence of central bank's members. Probably the most important speech will be held on Friday when Janet Yellen (the president of the Federal Reserve) and Mario Draghi's speeches (the president of the European Central Bank) will be given.

Hence, the biggest potential increases in fluctuations may occur on Friday, especially if Draghi surprises the audience by the details about QE tapering. However, headlines (often without details) by the news agencies may slightly increase fluctuations in the currency market even tomorrow afternoon.

 


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