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Afternoon analysis 28.11.2017

28 Nov 2017 15:11|Bartosz Grejner

The dollar's quotations were relatively stable, although the deficit in goods trade is the highest since January. The zloty is near yesterday's records, caused by good data from the Polish Ministry of Finance.

EUR/USD around 1.19, weak data from the USA

Tuesday's quotations on the currency market were relatively calm. Since 12.00 a.m., the EUR/USD exchange rate was close to the 1.19 level. The fluctuation range was also limited - today, quotations were moving in the range of 1.187-1.192. Similarly, there were no significant changes on the other main currency pairs. Significant changes are unlikely until the Senate's vote in the USA on the tax reform draft (probably on Tuesday or Wednesday) and the publication of the inflation levels in the US and the eurozone.

Good data came from the French economy today. According to the French statistical office, consumer confidence rose in November to its highest level since August, exceeding market expectations (102 vs. 101 pts). On the other hand, the German investors confidence index in November from GfK indicated stabilisation of this index (10.7 pts) at the same level as last month, although the consensus indicated an increase to 10.8 pts.

However, this is still the level of nearly 16-year highs (10.9 points) from August and all its components, for example, the economy's expectations, income projections and willingness to purchase remain at very high levels. These are further indexes that confirm the positive condition of the eurozone economy. Although their impact on the euro exchange rate was rather limited today, they could have helped to maintain a good sentiment, despite increased concerns about the situation on the Korean Peninsula and political events in Ireland.

Before the beginning of the US stock session, the main European stock indexes gained slightly (about 0.5%). Although no significant changes in the currency market are likely to be expected in the following hours, published data on the balance of the US October trade balance may hinder the dollar from paring potential losses.

Deficit in US trade in goods reached 68.3 billion USD and was the highest since January, although the market expectations indicated a reading of 3.3 billion USD lower. Export in October was lower by approx. 1.3 billion USD in more than a month earlier, while import increased by about 3 billion USD, mainly due to imports of industrial materials, which also include fuels.

Stable quotations on the zloty

The Polish currency was still in a relatively good condition in relation to the main currencies, despite the lack of significant changes in its value. The price for one euro, franc, dollar or pound was still around 1 gr from the last lows. The Polish Ministry of Finance also provided positive information today. In its statement, it presented the general government deficit at the end of October to be around 7 billion PLN. The execution of the budget in the period from January to October was also a positive surprise, showing a surplus of 2.7 billion PLN.

This publication did not cause any significant changes on the zloty but may contribute to maintaining current trends in relation to the main currencies. A threat to the Polish currency in the next few hours could be the depreciation on the US share market and/or a significant appreciation of the dollar combined with an increase in the yields of the US Treasury bonds. However, the probability of such a scenario occurring seems limited.

Tomorrow's preview

At 1.00 p.m., the European Commission may publish a set of positive data on the eurozone. At the same time, the EC will publish customers and investors confidence index in the eurozone in November. The index has been growing steadily for over the last five years and reached nearly 17-year-old records (114 points). The market consensus assumes that this trend will continue and increase to 114.6 percentage points in the future. Breaching of the most recent highs could only confirm the positive condition of the eurozone economy (after a series of data from last week) and slightly strengthen the euro.

At 2.00 p.m., the Federal Statistics Office (Destatis) will present a preliminary consumer inflation reading (CPI) for Germany in November. Given that it is the largest economy in the eurozone, this reading may give hints of the inflation level in the eurozone as a whole, which will be published on Thursday. In October, inflation in Germany fell from 1.8% a month earlier to 1.6% in a year, which was the lowest level since June. The median of market expectations points to a rebound to 1.7%. An average increase in consumer prices exceeding this level could not only strengthen the euro but also improve the sentiment in the market, which has recently been helpful to the good condition of the zloty.

Half an hour later, the Bureau of Economic Analysis (BEA) will publish a second reading of the US GDP growth rate in Q3. A month ago, preliminary data indicating the economy's development at a pace of 3% YOY significantly exceeded market estimates, which were 0.5 percentage points lower. Currently, they suggest an increase to 3.2%. Recent quarters have shown that further BEA publications are often most frequently reviewed upwards, so a positive impact on the dollar would probably have a reading of at least 0.2 percentage points higher than market expectations.


28 Nov 2017 15:11|Bartosz Grejner

This commentary is not a recommendation within the meaning of Regulation of the Minister of Finance of 19 October 2005. It has been prepared for information purposes only and should not serve as a basis for making any investment decisions. Neither the author nor the publisher can be held liable for investment decisions made on the basis of information contained in this commentary. Copying or duplicating this report without acknowledgement of the source is prohibited.

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