Afternoon analysis 26.04.2017

The dollar has been working-off its losses, but it remains near its six-month minimum. Volatility in the currency market may be increased by the announcement of the US tax system changes. The zloty is working-off its growths.

Market is anticipating

The upward trend caused by the result of the first round of the French presidential election has stopped and the market has become stable. Today, the European stock market indexes were losing value by approximately 0.5%. The currency market has also become stable. Investors are currently anticipating the details regarding changes in the US tax system.

Moreover, tomorrow we will receive the announcement from the European Central Bank. According to information agencies, the ECB’s attitude may become more hawkish in the second half of the year, which would strengthen the euro. However, the ECB message from March was also interpreted as hawkish. Therefore, it seems most likely that the ECB will not suggest the monetary tightening later this year for the time being.

Today, the dollar has been gaining value. In addition, the American currency was supported by a statement from the US Secretary of the Treasury, Steve Mnuchin. He confirmed that the tax system changes will be revealed today and suggested that this will be the largest decrease in taxes in the American history.

The EUR/USD went below 1.09. Moreover, the USD/JPY went above 111.6. As a result, the dollar’s index went above the level of 99 points. We may expect that fluctuations will increase due to the announcement regarding the US tax system changes.

Zloty has been losing with every hour

This morning, the zloty was gaining against the main currencies. However, over the past few hours we have been observing a decrease in its value. This is consistent with a deteriorating sentiment towards the Central-East European currencies, which may have been caused by the dollar’s strengthening.

We need to keep in mind that over the past two days the zloty has reached its long-term maximum and even a slight deterioration in the sentiment may encourage to sell the Polish currency. The zloty’s reaction to changes in the sentiment have been intense over the past few weeks. Therefore, a larger correction of the zloty now should not be surprising.

Tomorrow’s events

At 8.00, GfK will publish the German consumer sentiment index. This index had been gradually increasing since August 2008 until February. On that month, its value went down from 10.2 points to 10 points and in March it decreased to 9.8 points. Currently, the market consensus shows an increase up to 9.9 points. Positive reading of this index may confirm the positive sentiment in the German economy and strengthen the euro.

At 13.45, the European Central Bank will announce its decision regarding interest rates and the QE program. The market doesn’t expect any changes of these indexes. However, the ECB press conference (at 14.30) will be significant. On one hand, baseline inflation has slowed down. This reduces chances for a more rapid monetary tightening. On the other hand, the political risk has been reduced (due to the result of the first round of the French presidential election) and this may encourage some of the ECB members to show a more hawkish attitude in the second half of the year. Therefore, the euro may be more volatile during the ECB press conference.

At 14.00, we will know the initial data regarding the CPI from both Poland and Germany for April. The market consensus for Poland is at the level of 2% YOY, which would be the same as the result from the previous month. However, the market consensus for Germany indicates an increase from 1.6% to 1.9%. In March, inflation level was partially determined by declines in the raw material market. However, these declines have been partially worked-off over the past weeks. Therefore, the CPI readings for April may appear slightly higher than they were in March. Nevertheless, due to the ECB meeting, this data will most likely have a limited impact on the euro.