Afternoon analysis 24.02.2017

The American currency is losing value. The yen is the strongest against the dollar in two weeks. The zloty’s quotations are determined by the global sentiment.

Dollar is under pressure

There was no significant macroeconomic data today. Therefore, the market most likely focused on Donald Trump’s testimony in front of the Congress on Tuesday. It is expected that the American president will mention his promises from the election campaign (an increase in infrastructural expenses and lowering taxes, among others). The dollar’s wear-off can be explained with anxieties of some investors that these matters may be ignored.

Taking into consideration that a portion of these ideas is consistent with ideas from the Republicans, it seems quite unlikely that these changes will not be implemented in the near future. Nevertheless, the dollar’s wear-off continues.

Two days ago, the EUR/USD was below the 1.05 level, only to bounce above 1.06 today. The weaker dollar (combined with the lower profitability of the American two year treasury bonds) has also caused the yen to strengthen. The USD/JPY was pushed near the level of 112.

Global sentiment is unfavorable for the zloty

The zloty wore-off due to a worse global sentiment. The EUR/PLN reached the 4.31 level and the CHF/PLN went up to 4.05. However, the USD/PLN is near 4.06. Donald Trump’s testimony may appear very crucial for this pair.

Taking into consideration the recent signals from the White House, the American president may mention that economic changes in the USA may be implemented soon. This would strengthen the dollar, as well as increase the value of the USD/PLN.

Next week’s events

On Monday at 14.30, the Census Bureau will present the data regarding the American orders for durable goods for January. This data is relatively volatile in the Month over Month interpretation. In October, this index increased 4.8% MoM, only to decrease by the same value and by 0.4% in November and December, respectively. The market consensus for January is at the level of positive 1.9% MoM. However, the less volatile baseline index of new orders (excluding transport) has been increasing over the past six months (positive 0.5% MoM in December; the same result is estimated for January.)

Taking into consideration the lack of significant readings on Monday, the above mentioned data may increase fluctuations on the American currency. However, the market will most likely be under the influence of President Donald Trump’s testimony on Tuesday (22.00 CET). Trump will present the plan of changes in the fiscal policy, which may reflect the content of the budget plan for the fiscal year 2018. The American president may also refer to his promises from the election campaign (a decrease in taxes, an increase in infrastructural expenses and the repatriation of foreign incomes, among others.) This could cause a strong reaction on the dollar, because the implementation of the above ideas would increase the private consumption, as well as the investment level.

On Tuesday at 11.00, Eurostat will present the initial data regarding inflation in the euro zone for February. This index has been increasing over the past six months. Due to an increase in the raw material prices, its growth pace has accelerated significantly (0.6% YoY, 1.1% YoY and 1.8% YoY in November, December and January, respectively). However, baseline inflation (excluding food and fuel) has been relatively stable in approximately three years (0.8% in the past two months). The market consensus is at the level of 1.9% YoY and 0.8% YoY for inflation and baseline inflation, respectively. However, due to the mild monetary policy from the ECB, this data will most likely have a limited impact on the euro. Baseline inflation remains at a relatively low level and doesn’t show an upward tendency, which should not force the ECB to tighten the monetary policy.

On Tuesday at 14.30, we will know the new estimates regarding the American GDP growth for the fourth quarter. According to the initial analysis from the Bureau of Economic Analysis (BEA), the American economic growath was at the level of 1.9% YoY (3.5% in the third quarter). Currently, the market consensus is at the level of 2.1% YoY. This data may have an impact on the profitability of the American treasury bonds, as well as on the dollar, especially if it’s better than estimated.