Afternoon analysis 28.07.2016

The lack of consensus before the Bank of Japan meeting tomorrow. Positive news from Germany. Jobless claims from the USA are slightly higher than expected. The EUR/PLN returns to the area of 4.36 and the pound is approaching its two-year minimum.

In the afternoon, the EUR/USD maintained the majority of growths gained after the Federal Reserve meeting yesterday. To a certain degree, it is supported by the macro data that showed a slightly higher than expected inflation growth in Germany. Moreover, publications from the USA were slightly lower than expected. However, we still think that if macroeconomic readings from the United States are relatively positive, a wear-off of the dollar will not be the base case scenario.

The Bank of Japan meeting tomorrow, will be the most significant in perspective of the coming hours. Taking into consideration behavior of the yen since the beginning of today's session, it seems that the market is less convinced that the BoJ will decide for an aggressive monetary stimulation.

Economists who were surveyed by Bloomberg, claim that scale of assets purchase will remain at the level of 80 trillion yen. However, six out of forty economists expects the QE to be increased by 100 trillion, nine economists estimates an increase up to 90 trillion and two of them claim it will be 85 trillion. Thus, we may assume that the values below 90 trillion will most likely cause strengthening of the JPY. Therefore, if the move is relatively strong, it will wear-off the American dollar. This is because the majority of the yen's trade is on the USD/JPY. The more the Japanese currency is purchased, the more the American currency is sold.

Economists are even more divided regarding the BoJ changing interest rates. Twenty out of forty surveyed thinks that interest rates will remain at the negative 0.1% level, eleven economists expects a decrease to the negative 0.2% level and nine expects a reduction to the negative 0.3% level. Even though expectations are at the negative 0.15% level, we can expect a strengthening of the Japanese currency, if the actual value is above the negative 0.2% level.

The Japanese government will begin consultations regarding fiscal stimulation on Friday (the final decision will most likely be made on the 2nd of August). The entire package is to be worth approximately 20 trillion yens (slightly less than 200 billion USD). However, the majority of this amount is to be spent on credits, as well as loan guarantees. A direct increase in expenses is to amount between two and three trillion yens. The larger the scale of stimulation, the larger likelihood of the yen's wear-off. However, it's worth focusing on the first reactions. Taking into consideration the scale of uncertainty before the meeting of the government, as well as the BoJ, the scope of moves may be very large.

Germany, USA and Poland

Publication regarding the German inflation was by 0.1% higher than the market consensus and amounted positive 0.4% y/y. Moreover, if we look at the initial data from July, a positive trend of increase in prices of services is maintaining and it amounts positive 1.4% y/y. Also, looking at seasonally equalized Destatis data regarding employment, we will see that the amount of workplaces continues to grow.

The American data was slightly worse. Weekly jobless claims increased by 13k to 266k, against the 262k consensus. However, it continues to be very low. This suggests that the American labor market is in a positive condition.

The EUR/PLN is returning to the 4.36 area, just as we expected. On the other hand, the pound situation is worse. A global wear-off of the British currency combined with a slightly better condition of the zloty, causes the GBP/PLN to go to the 5.16-5.17 area. This is close to its two-year minimum.