Afternoon analysis 25.03.2015

The EUR/USD resumes its rebound as today's macro data supports the euro against the dollar. A broad strengthening of the zloty – the Polish currency increased even against the franc.

After a brief pause on yesterday's session, the EUR/USD returned to gains on Thursday as the economic reports have been supportive for the euro against the dollar.

In the first part of the day, the data on the Ifo Index supported the euro as the reading exceeded the forecast. The major sentiment gauge in Germany rose for the fifth time in a row to the highest level since June 2014. The result reveals an ongoing improvement in the German economic landscape, that may spur growth in the region.

Recent data from the eurozone show that the situation is systematically getting better. Moreover, the European Central Bank reports revealed that the private credit growth, credit condition measures and demand for loans for the real economy – all show that pillars for GDP rebound are getting stronger.

Weaker orders

In turn, the US industry data continue to disappoint. Earlier, the reports on the production showed three declines in a row. And today's numbers on orders for durable goods also missed expectation – a premise that future expansion may be slower.

In February, orders for durable goods declined 1.4 percent – clearly a worse result than expected. It increased 2 percent in the previous month (revised from 2.8 percent). Moreover, the report excluding transportation sector showed a 0.4 decline (also below expectations) against minus 0.7 percent in the preceding period (revised from plus 0.3).

The Federal Reserve has shown a more dovish stance in its recent statement than previously expected. As a result, the EUR/USD has been able to rebound from the lowest level since 2003. This move may be extended if the US reports continue to disappoint.

Given the situation, the way for more significant gains of the euro against the dollar may be paved. The EUR/USD hitting 1.12 in the near term is a probable scenario. In the longer term, the major currency pair will continue to gain if the macroeconomic reports are supportive for this move.

Stronger zloty

Since the beginning of the week the zloty has remained in very good shape against the euro, dollar and pound. However, the Polish currency was pressured against the franc, as the Swiss currency gained due to uncertainty concerning Greece. However, this was not the case today – the CHF/PLN also dropped as the risk appetite increased.

The zloty fulfills the appreciation scenario that was outlined after the Monetary Policy Council ended the easing cycle and the Federal Reserve presented a looser stance that supports risk assets. Moreover, comments from the National Bank of Poland president Marek Belka, would have been supportive for the zloty – the NBP chief said that the EUR/PLN dropping to 3.90 poses no threat to the Polish economy. A similar statement would have been a signal for speculative investors to test the patience of the Polish monetary authorities.