Afternoon analysis 29.05.2017

29.05.2017 15:15|Bartosz Grejner

A calm session for the dollar on Monday, however, the next days could set a course for the weeks ahead. The zloty is still in good condition, close to Friday’s levels.

A slow Monday

Today’s session was relatively calm both in the capital and currency markets. The American and British stock exchanges were closed due to the holiday, which contributed to a significant decrease in liquidity. This could theoretically spark substantial movements should anything unexpected happen, however, there were no important economic publications planned for today.

The American currency remained close to its Friday level – the dollar’s index (DXY) was only just above the 97 pts marker. The main currency pair, EUR/USD, traded in a relatively narrow range between 1.116 and 1.119. However, such a low level of variation shouldn’t be expected for the remainder of the week, quite the opposite – it could increase substantially.

The reason for this could be the important economic events planned for the next few days. The PCE inflation reading for April will be known tomorrow, members of the Federal Reserve will be holding speeches during the week which could give insight into how the statement will look after the June monetary policy meeting. Important data regarding the US labour market will come on the last two days: ADP will publish on Thursday the nonfarm payrolls data while the official report from the Department of Labor will come on Friday.

The dollar has been under pressure for some time now which could suggest its appreciation potential could be quite large. Should the inflation and labour market data not disappoint and even exceed expectations (especially inflation and average hourly earnings), the US currency could visibly gain in value at the end of the week.

Zloty near last week's levels

Today’s trading on the global markets saw little volatility. The theme wasn’t any different in the case of the Polish currency which was little changed in relation to the main currencies. In the absence of American investors, USD/PLN remained close to one-year lows. However, this could change by the end of the week.

The aforementioned important events for this week could potentially substantially influence the dollar. The worst case scenario for the zloty would be when the US data came in great and visibly exceeded estimates. This could not only cause the USD/PLN exchange rate to sharply increase but could bring about an outflow of capital towards US assets which could, in turn, weaken the emerging markets currencies, including the zloty.

Tomorrow’s preview

After a Monday with very little data, Tuesday will probably be more eventful, especially concerning the dollar. The US Bureau of Economic Analysis will publish data regarding the PCE inflation in April. It may prove to be an important event as the Federal Reserve uses this indicator (and not the consumer inflation index) in its inflation projections.

Market expectations point towards the main PCE inflation index to be 1.7% and the core index (excluding most volatile items) to be 1.5%. Readings slightly above the above estimates could cause a strong positive reaction on the dollar, taking into account its recent slump.

Conference Board will publish at 4 p.m. CET its consumer confidence index for May. The index reached 16-year highs in March (124.9 pts), however, dropped to 120.3 pts a month later – which was still close to March records. The median of market expectations points to a further decrease in May to 119.9 pts.

The consumer sentiment, according to the Conference Board, grew at a very fast pace after the US elections as consumers were more optimistic about future reforms which were announced during the campaign. Their implementation didn’t go as smoothly as was expected, though, which could cause consumers’ optimism to somewhat dampen. A worse than expected reading from the Conference Board index could slightly weaken the dollar, however, its impact could be limited as investors will probably focus on the aforementioned inflation reading to a greater extent.

 


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