Afternoon analysis 27.02.2017

The euro is supported by the positive data from the euro zone, as well as by increasing support for the independent candidate in the French presidential elections. The dollar wore-off due to negative data regarding new orders. The zloty is relatively stable and anticipates Trump’s testimony.

Data from Europe and USA

The European Committee published the consumer and entrepreneur trust index for February. Despite only a minimum increase, this index reached its highest result since 2011 (108 points). This result was caused by a positive sentiment in the industrial, services and building sectors. What’s interesting is that only Germany quoted a decrease in this index. However, it remained at a high level.

Another positive news for the euro was increasing support for Emmanuel Marcon, which indicates his definite victory over Marine Le Pen in the second round of the French presidential elections (source: Bloomberg). The market considers Le Pen (leader of the National Front) as a candidate who would cause a large uncertainty. Therefore, her losses against other candidates improve the market sentiment.

The American Census Bureau presented the data regarding orders for durable goods for January. The main index increased 1.8% MoM (against the expected 1.7% MoM). However, the baseline index (which is more significant) decreased by 0.2% MoM for the first time since June. A significant increase was quoted by orders for capital goods (4.2% MoM). However, orders for airplanes decreased by 0.4% MoM.

Due to positive data from Europe, the euro’s condition has improved. The EUR/USD increased from 1.0550 to approximately 1.06. This was also caused by the weaker dollar. Moreover, the GBP/USD remained above the 1.24 level.

Zloty is relatively calm

The zloty’s quotations have been in a relatively narrow fluctuation range. Tomorrow’s testimony from Donald Trump in front of the Congress may cause some volatility on the Polish currency. However, this should mainly concern the USD/PLN.

Tomorrow’s events

At 11.00, the Eurostat will publish the data regarding price changes in the euro zone for February. The consumer inflation (CPI) has been gradually increasing over the past six months. Recently, the pace of inflation growth increased, mainly due to increasing oil prices. The CPI index increased increased 1.1% and 1.8% YoY in December and January, respectively. However, baseline inflation has been relatively stable for approximately three years.

Currently, the market consensus is at the level of 1.9% YoY. However, the market expects baseline inflation to remain at the level of 0.8% YoY. This data will most likely have a limited impact on the euro, due to a mild monetary policy from the European Central Bank.

At 14.30, the American Bureau of Economic Analysis (BEA) will publish the second reading of the GDP growth for the fourth quarter. According to the initial data, this index was at the level of 1.9% YoY. Currently, the market consensus is at the level of 2.1% YoY. If the reading is better than expected, this may increase fluctuations on the dollar.

Tomorrow’s main event will be Donald Trump’s testimony in front of the Congress at 21.00 EST (3.00 CET). Trump has been announcing the tax system reform for weeks. Therefore, investors expect to hear more details regarding this plan during the testimony.

This factor may have the largest impact on the dollar’s quotations. However, the American president may also mention about an increase in infrastructural expenses, as well as about the repatriation of the foreign incomes. If these topics are discussed in more details than they have been so far, this could increase the dollar’s value, because the implementation of these changes may increase consumption, as well as investments.