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Calm beginning of the week (Afternoon analysis 09.04.2018)

9 Apr 2018 15:45|Bartosz Grejner

Weaker data from the eurozone without a significant impact on the currency, although expectations about the future economic situation in Germany are falling to 3.5-year lows due to potential restrictions on free trade. The zloty is relatively stable, but fluctuations may be observed from Wednesday.

Small changes

The first trading day in the currency market was calm. The main currency pair, the EUR/USD, fluctuated around 1.23 near Friday's closing level. Today, the macroeconomic data, which is worse than expected, also had a limited impact on the euro.

German export fell by 3.2% per month in February, while import fell by 1.3%, although they were expected to grow by 0.2% and 0.3% respectively. As a result of a stronger decrease in exports (the largest month-to-month decrease in 2.5 years), the trade surplus amounted to 19.2 billion EUR and was the lowest in a year.

Moreover, investor confidence in the euro area declined more than expected in April. The sentix index fell from 24 points to 19.6 points, which was also the lowest in a year. This is the third consecutive decrease, caused by the worsening of expectations towards the future economic situation of the region.

Concerns are mainly related to a potential trade war, which may limit free trade worldwide. The largest European exporter, Germany, experienced a significant drop in these expectations, falling to its lowest level since October 2014.

No reaction from the market indicates that it may already concentrate on the minutes from the last meeting of monetary committees in the US (Wednesday) and the eurozone (Thursday), as well as on data on consumer inflation (CPI) in the US in March (Wednesday).

Relatively calm quotations of the main currencies also translated into zloty stabilisation. The euro fell slightly below 4.20 PLN, to about 4.195 PLN, and in relation to the regional forint, the Polish currency remained practically unchanged. The dollar depreciated by approx. 0.3%, to a level below 3.41 PLN - the US currency cost the least since March 28th.

Limited volatility, on the currencies, including the zloty, is unlikely to continue later this week. In addition to the aforementioned events, on Wednesday a decision of the Monetary Policy Council concerning the interest rates (no expected changes) will be published. However, taking into account the recent inflation readings, the message from the MPC may be dovish, which may weaken the Polish currency.

Tomorrow's preview

The calendar of scheduled events for tomorrow is quite limited. At 2:30 p.m., the Bureau for Economic Analysis (BEA) in the USA will present data on producers' inflation (PPI) in March. In February, the relatively more important core index (excluding energy and food prices) increased to 2.5% per year, the highest value in 5.5 years. The median of market expectations indicates a further PPI increase to 2.6%.

A higher inflation rate among producers than this may slightly support the dollar, although the changes are unlikely to be significant. The market will rather focus on the "minutes" of the last meeting of the Federative Reserve Monetary Committee, at which the expected decision to raise interest rates was taken.

In minutes, there may be indications of the possibility of four interest rate hikes in total this year (currently, there are three in the consensus). If the minutes' tone is relatively hawkish on this issue, we may have to deal with a significant dollar appreciation, which would also be negative for the Polish currency. Until Wednesday evening, the dollar is likely to stabilize, just like the zloty.


9 Apr 2018 15:45|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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