Afternoon analysis 30.03.2016

The ADP reading from the US jobs market was in line with expectations. Evans remains optimistic regarding the condition of the US economy. The zloty is slightly weaker during the afternoon trading.

After yesterday's Janet Yellen speech the situation on the FX market stabilizes. The EUR/USD is traded around 1.13. Regarding the incoming data the ADP reading was the most anticipated publication. However, it was close to the market consensus (200k), so the impact for the market was limited event taking into the account downward revision for the previous month. Overall the data fits into a strong and stable upward trend regarding the US employment.

In the longer run both the ADP and Friday's payrolls readings from the Labour Department are strongly positively correlated. In the short run, however, the payrolls tend to be much more volatile. But regarding the most recent comments from Fed's chairwoman the data would have to be considerably higher to diminish the dovish tone from Yelln.

Staying in the subjects of the Federal Reserve it is worth noting today's comments from Charles Evans. Chciago Fed's President told CNBC that the Fed may hike more than twice this year if the data turns out to be strong.

Evans also does not anticipate the “hard lending” in China. Theoretically the comments might be made by the Fed's member who is neutral or even slightly hawkish. But Evans has been regarded as a most dovish FOMC participant.

His comments may also prove how divided is the Federal Reserve. They may also fuel the discussion whether Yellen has got enough support concerning her dovish stance inside the FOMC. The chairwoman is leaning toward the most benign camp regarding the monetary policy what may generate some headwinds on building the consensus.

The mentioned issues are not expected to be heavily discussed by the market in the near future. Investors are expected to reacted in a muted way on more hawkish comments from the Federal Reserve and probably pay more attention to comments from governors and other key members rather than regular participants without voting rights this year. Only when Brainard or Rosengren shift to more hawkish stance the market may question whether Yellen lacks support.

The zloty is slightly weaker

In the early afternoon there was around half percentage point zloty depreciation. The similar move was also observed on the forint. In news agencies there were hardly any news regarding the issue. We may conclude that the market disturbance was rather short lived.

The base case scenario for the EUR/PLN is still trading around 4.25. However, if the ECB turns more into the more dovish rhetoric, that is suggesting more cuts in in the future, the euro might get under pressure what might initiate the move toward 4.20 level.