Afternoon analysis 24.05.2017

24.05.2017 15:22|Bartosz Grejner

The May’s German Consumer Climate index climbed to the highest level in over 15 years, although it had little impact on the euro or European indexes. The zloty strengthened as a result of a better sentiment toward currencies in the region.

Yet another positive data regarding the German economy came today from the GfK institute. After yesterday’s solid PMI data and the highest level of the Ifo Business Climate Index in history (began in 1991), the GfK data showed today that the consumer climate index rose to the highest level in 15.5 years (10.4 points vs. 10.2 points a month ago). Although this was yet another positive data reflecting a very good condition of the German economy and moods, neither the euro nor the European indexes benefited from it today.

The reason could be Moody’s decision to cut China’s rating from AA3 to A1. However, the plan of the new US budget published yesterday helped the dollar to strengthen. The dollar’s index (DXY) increase above the 97 point threshold and the EUR/USD declined below the 1.12 level and stayed just below it up until around 3 p.m. CET.

There will be two events today which could influence the dollar’s value. At 4 p.m. existing home sales data will be published and at 8 p.m. the Federal Reserve will share “minutes” of the last FOMC meeting. Yesterday’s new home sales data fell short of expectations, declining by 11.4% month-over-month in April, which was the biggest drop since September 2015. Regarding the FOMC “minutes” - the May statement after the meeting was relatively optimistic, however, it could be overshadowed by the recent political events in the US and ultimately have a limited impact on the dollar.

Zloty stronger yet again

The trading levels on the zloty this morning were similar to yesterday’s close rates. However, the Polish currency started visibly gaining around midday. The zloty strengthened against most major currencies: EUR/PLN fell to 4.18, while the USD/PLN fell to 3.73. The exchange rate against the pound (GBP/PLN) also dropped to 4.84, close to the lowest level since November. The Swiss franc was also noticeably weaker: CHF/PLN at the 3.825 level was only 2 gr above two-year lows.

The zloty was again supported by a positive sentiment towards currencies in the region. The Hungarian forint gained today as well, however, not to the same extent as the zloty. A rapidly gaining dollar could theoretically hamper the zloty’s appreciation, but the probability of such a scenario seems limited at the moment.

Tomorrow’s preview

The Polish Central Statistical Office (GUS) will publish CET data regarding the unemployment rate in April at 10.00 a.m. The March’s rate reached a record low (8.1%) and market expectations point to a further decline to 7.7% in April. Although the data could be positive for the Polish economy, they most probably will prove quite neutral for zloty. The unemployment rate has been at historical lows for nearly a year.

The Office for National Statistics (ONS) will share the Q1 GDP growth rate data at 10.30 a.m. According to a preliminary reading from a month ago, the British economy expanded by 2.1% year-over-year, which was 0.1 percentage point below expectations. The pound has been trading against the dollar in a relatively narrow range during the last month (1.28 – 1.30). This will already be the second reading, however, a deviation from the market consensus (2.1%) could significantly impact the pound – especially considering the Brexit process and the upcoming elections in Great Britain.

An hour before the start of the trading session on the New York Stock Exchange, the US Department of Labor will publish data regarding initial jobless claims and insured unemployment for the previous ended week. The recent reports have been particularly positive: the initial jobless claims have been below 240k for three straight weeks, while the insured unemployment remained below the level of 2 million for five weeks in a row, recording the lowest level since November 1988 in the process. Should tomorrow’s report show jobless claims within 230k-240k range and an under 2 million insured unemployment rate, the dollar could be in a better condition as a result.

 


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