Afternoon deterioration of sentiment (Afternoon analysis 12.06.2020)

Friday looked very positive. The optimism was fading away as the hours passed, and the demand for European Treasury bonds was increasing. As a result, the dollar also started to pare losses. The zloty is in a relatively good condition, although the USD/PLN pair is back above 3.96.

Positive start

Even in the early afternoon, the positive sentiment continued, supported by a growing appetite for more risky asset classes. The main market indexes gained 2-3% each shortly after the start of the trading session on the New York Stock Exchange, paring some of the losses incurred during yesterday's biggest one-day drop since March.

However, after an hour and a half before the start of quotations in the USA, some of these profits were quickly lost. At the same time, we saw a strong increase in demand for European Treasury bonds, reducing their profitability. This put pressure on the euro and also strengthened the dollar.

The EUR/USD quotations fell at an equally rapid pace from over 1.13 to about 1.1230 - the lower limit of quotations from June 4th. However, looking through the perspective of the last three weeks (when they were below 1.09), the current levels still indicate a weak dollar and, at the same time, show how big a "reserve " the dollar has if the optimism in the market is slightly reduced.

Bunch of new stimuli

Currently, the market has some information to digest, from depressing macroeconomic forecasts, such as those of the OECD or the Federal Reserve, to the exclusion of an interest rate increase in the USA at Tuesday's Federal Reserve meeting.

Taking this information into account, as well as the risks for the rest of the year (e.g. US elections, the second wave of the disease), the high level of optimism in the market related to the lifting of restrictions, may be impossible to maintain.

The afternoon change of sentiment in the market did not do much damage to the zloty. Although the Polish currency returned all profits earned today against the dollar, the USD/PLN quotations were only slightly above 3.96, just above the level from yesterday's closing. The exchange rate of the zloty against the euro (approx. 4.45) or the Swiss franc (approx. 4.16) maintained practically all the recovered losses from yesterday.

The test for the zloty may be the beginning of the next week. If slightly weaker market sentiment prevails, which may be accompanied by a strengthening of the dollar, the demand for emerging countries' currencies may significantly weaken, at the same time causing slightly greater supply pressure on the zloty as well.