Afternoon analysis 25.10.2017

The euro is stronger, but better data on orders for durable goods from the US may slightly strengthen the dollar in the following hours. Further pressure on the Swiss currency results in setting the new lows on the CHF/PLN pair.

Better euro condition helps the zloty

Another day of good sentiment on the market was observed. It was also supported by the better than expected climate of German entrepreneurs (highest since German reunification). As a result, the euro was stronger today - it gained in relation to the franc (nearly 1.17 EUR/CHF - the highest levels since mid-January 2015) and to the dollar. Quotations of the main currency pair, i.e. the EUR/USD one, increased gradually to approx. 1.179 - the last time we paid more than 1.18 for one euro was five days ago.

The continuation of the upward trend in the euro was somewhat hampered by orders for durable goods in the US in September, which clearly exceeded the market expectations. Orders increased by 2.2% over the previous month, while the growth was expected to be more than two times lower (1%). Even the core index (excluding transport orders) breached the consensus by 0.2 percentage points by 0.7%, noting an increase of 0.7%. This may limit the appreciation pace of the euro in subsequent hours.

The positive sentiment on the market and Bloomberg's reports that one of the members of the Polish Monetary Policy Council (Eugeniusz Gatnar) supports an increase in interest rates by 25 basis points already in the first quarter of 2018 have clearly improved the zloty's condition. The EUR/PLN exchange rate fell to about 4.23 and USD/PLN to approx. 3.595. However, a significant increase in value was observed in the relation between the franc and the zloty.

The Swiss franc, being under constant pressure, connected with the good eurozone economies' condition and political stability, caused that the CHF/PLN quotations continued to decline. For the first time since mid-January 2015, the price of franc on the interbank market has fallen below 3.62 PLN - this is only about 8 gr more than it was before the Swiss franc was released to the euro.

The calendar of scheduled events for the rest of the day is relatively limited. Market participants' attention may move to the ECB tomorrow, therefore the trading on the foreign exchange market will probably stabilise. However, it should be remembered, that the period of Q3 financial statements' publication for the US has begun. Worse than expected results of the largest companies may cause declines in the main stock market indexes in the US, which in turn may put pressure on emerging countries' currencies, including the zloty. In such a scenario, the Polish currency could lose a part of the increases achieved so far.

Tomorrow's preview

At 8:00, the GfK will present consumer confidence index data in Germany. At the end of August, it reached nearly a 16-year record (10.9 points) and in September, the sentiment among German consumers remained at a very high level (drop by only 0.1 pts). Now the median of expectations indicates that this level will be maintained.

However, today's increase in the indexes of German entrepreneurs' climate to the highest level ever (since German reunification) makes it possible for consumers' confidence index to gain in value too. Another argument - a better than expected GfK index for Europe's largest economy can support the euro and put further pressure on the franc.

In turn, at 1.45 p.m., the statement of the ECB's monetary committee after the two-day meeting will be published. Changes in interest rates and the asset purchase program are not expected, but the latter is widely expected to be halved (from 60 billion EUR per month to 30 billion EUR).

The reduction of the monthly QE tapering by less than half could, on the other hand, result in evoking negative pressure on the euro or strengthen the Swiss franc, which is currently under high pressure. Around the time of Mario Draghi's press conference and statement (beginning at 2.30 p.m.) we can, therefore, expect an increased level of fluctuations in the currency market, especially in the case of the euro.

At 2.30 p.m., weekly information on the number of initial jobless claims in the US will also be published. A week ago, data from the Department of Labour showed the smallest number of them for over 44 years, but it was stressed that this data was affected by hurricanes that hit some of the US' states in September. This, in turn, may suggest that the impact of this data on the dollar's quotation will also be limited this week.

At the same time, the balance of foreign trade in goods will be released, which has improved in recent months (the deficit has decreased). In August, it amounted to 63.3 billion USD and the median of market expectations indicates an increase to 63.8 billion USD. A further decline in the deficit (below 63.3 billion USD) could slightly strengthen the dollar, although speculation on the identity of the new Federal Reserve President and the ECB's aforementioned statement and press conference seem to have the greatest impact on the dollar.