Afternoon analysis 27.03.2017

The eurozone’s economic sentiment is improving. The dollar continues to wear-off and the EUR/USD has reached the level of 1.09. The zloty remains in a positive condition.

Positive sentiment in Germany and negative in USA

Today, Ifo informed that the German Ifo business sentiment index increased to the level of 112.3 points, which is its highest since July 2011. Both expectations regarding the future economic condition and evaluation of the current economic condition, have increased. Index for the industrial sector has reached its highest level in approximately six years. Moreover, the building sector condition is at its highest level since 1991.

The wholesale sector has quoted a slight deterioration, but it’s level remains relatively high. Today’s Ifo data confirmed a very positive condition of the German economy. Due to the fact that Germany is the largest economy in Europe, this data may be positive for the euro.

Nevertheless, the Ifo reading had a limited impact on the European currency. The market has been dominated by the lack of agreement regarding new American healthcare resolutions. This caused the dollar to depreciate significantly. The American currency has reached its four-month minimum.

The EUR/USD has reached the 1.09 level. Moreover, the USD/JPY has been pushed to 110 and the GBP/USD has reached the level of approximately 1.26. All of this has caused the dollar’s index to go down to approximately 98.7 points.

Zloty is stable

The positive sentiment towards the emerging market currencies has been continued today. This also includes the zloty. The PLN/HUF was near its level from the end of Friday and the EUR/PLN remained near the level of 4.26. This was despite the fact that the euro was globally stronger today.

The zloty’s condition against the dollar was even better and the USD/PLN has been pushed to the level of 3.91. The weak dollar, as well as decreasing profitability of treasury bonds should support the zloty in the short-term. However, a change of the sentiment towards the American currency may cause the capital to leave the emerging market currencies, hence wear-off the zloty.

Tomorrow’s events

At 14.30, the Bureau of Economic Analysis will publish the American trade balance for February. In January, the deficit of the trade account was at the level of 69.2 billion dollars, which was by 7.6% less than in November. This was a result of a lower export combined with a higher import (mainly of the consumer goods).

Currently, the market consensus is at the level of 66.6 billion dollars. Even though this data has never caused large fluctuations on the dollar, a negative reading may wear-off the dollar, taking into consideration the recent weakness of the American currency.

No significant macroeconomic data regarding the Polish economy have been scheduled for this week. Therefore, the Polish currency will most likely remain determined by the general sentiment towards the emerging market currencies. The dollar’s weakness, as well as decreasing profitability of the American bonds, may support the zloty’s better condition.