Afternoon analysis 27.06.2017

Mario Draghi’s speech with significant impact on the market. The EUR/USD is getting closer to the 1.13 mark and the yields on German debt are soaring by 7 bps. The zloty is lower to the euro but still remains fairly strong. The dollar is falling around half of one percent to the PLN.

During the afternoon’s trading on the currency market, investors have still been observing the effects of the morning Mario Draghi speech. The EUR/USD is quoted around 1.1280 level which translates to 100 pips appreciation comparing to the beginning of the European session.

Besides the move on the main currency pair there are also significant changes on the fixed income instruments in the euro area. Yields on 10-year German bonds rose by 7 bps. The scale of the rise is quite high taking into account their overall low level at 0.31%.

It is hard to say whether today’s ECB chief speech will be a groundbreaking moment for the monetary policy in the euro area. It is possible, however, that we may be witnessing the beginning of a gradual move which will finally translate into suggestions to withdraw from QE in the latter part of 2017. Moreover, if the the US data remains uninspiring we could see a convergence of the monetary policy not the divergence predicted just a few months ago. It would be a positive signal for the EUR/USD.

In the perspective of the forthcoming hours, it is worth remembering about Janet Yellen’s speech. It is scheduled for 19.00 CET. She was fairly hawkish during her press conference after June’s FOMC meeting. A similar stance today may put some sort of limit on the EUR/USD appreciation. However, if the Fed’s chairwoman focuses somewhat on the negative data from the US economy the dollar may weaken further pushing the EUR/USD above 1.1300 level to 9-month high.

ECB and the zloty

Less dovish ECB is not an element which may push the zloty higher. However, if the central bank policy is an effect of the improving economy of the common currency, it should create a neutral scenario neutral for the EUR/PLN.

The EUR/USD appreciation, however, brings more selling pressure for the dollar in relation to the zloty. The USD/PLN is getting closer to more than the 18 month lows (3.70) seen at the beginning of June. Moreover, if the market remains sceptical regarding future interest rates in the US, it is possible that the dollar will be pushed to the 3.65-3.70 range. It would be the lowest level since October 2015.