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Daily analysis 01.08.2017

1 Aug 2017 12:27|Marcin Lipka

Further increases of EUR/USD and EUR/CHF pairs, however, today's eurozone readings did not exceed market estimates. Good PMI figures from Great Britain. The zloty has remained relatively weak. The EUR/PLN pair has been close to the 4.25 level, and the PLN/HUF pair is at 5-month lows. PMI from Poland has been clearly below estimates, but hasn’t had much influence on the national currency.

Macro key data (CET time- Central-European). Estimates of macro data are based on Bloomberg information unless marked otherwise.

  • 2.30 p.m.: American incomes and spending in June (estimate: 0.4% MOM and 0.1% MOM respectively),
  • 2.30 p.m.: PCE inflation for June in the US (estimates: 1.3% YOY and 0.0% MOM, excluding fuels and food 1.4% YOY and 0.1% MOM),
  • 4.00: ISM index from the US industry (estimate: 56.5 points).

Pessimism has been maintained in relation to the dollar

Yesterday on the FX market we were facing another rise in the EUR/USD pair. New, several month records of the euro strength and the dollar weakness haven’t had only one cause. In addition, it is worth noting that the impulses that had triggered the appreciation of the main currency pair were relatively weak, and that in the case of neutral sentiment, it would not have produced such strong movements.

One could just look at Stanley Fischer's presentation in Brazil. The Federal Reserve's deputy has tried to identify the global and US causes of low inflation and low real interest rates. A reference to "political uncertainty" appeared in a 12-page document, but this reason was just one of many. However, this issue has dominated the message, suggesting that political negligence may delay monetary tightening.

The element that could have helped weaken the USD was the slightly worse than expected Chicago PMI readings. In general, however, this data rarely affects the currency exchange rates because their volatility has been too high. This indicator has consistently been close to the 60 point limit, which isn’t very pessimistic information at all.

In the evening, there was news about more staff changes in the White House. Also, this issue, although important, may not necessarily have to be considered negative for the US currency. However, the market has been clearly pessimistic about the USD and there will probably be a need of a solid portion of positive information for the dollar to change this trend.

Better data from United Kingdom. No surprises in the eurozone

Before midday, the British industry data came. The PMI index rose to 55.1 pts with estimates lower by about 0.5 pts. Taking into account the weak data on production, and the decreasing purchasing power of consumers, the readings should be received as positive.

Particularly important may be the fact of the "solid growth on new orders supported by strong export conditions" and emphasized by the IHS Markit/CIPS study, "the creation of new jobs has been close to the highest in the last three years." The pound has strengthened after readings on both the euro and the dollar, although, crucial for the sterling may be Thursday's statement from the Bank of England.

Data can be taken from the eurozone without any emotions. Industrial PMI was slightly below the initial reading and GDP in the common currency area reached 2.1% YOY in the second quarter. Although data has been the highest for more than six years, it has been in line with the median expectations of economists surveyed by Bloomberg. The lack of consensus (which some parts of the market has already become used to) has caused a slight drop in the EUR/CHF pair.

In the afternoon, attention should be paid to data on American income and spending as well as on PCE inflation. This measure of consumer price changes has been primarily analysed by Federal Reserve representatives. A reading below the consensus (mainly core inflation) has been a strong argument for extending the negative sentiment to the dollar.

PMI the weakest in 8 months

The zloty has still been relatively weak for the moment. The EUR/PLN pair has been close to 4.25-4.26. The worsening condition of the national currency has been particularly apparent with respect to its Hungarian counterpart. The PLN/HUF pair has been currently at 5-month lows and testing 71.20 levels. It is also worth noting that the CHF/HUF has been currently at levels before releasing the franc's peg to the euro by the SNB in ​​early 2015, and the CHF/PLN pair has been missing around 20 gr. This has shown perfectly the relative weakness of PLN.

The domestic currency has not received help from the PMI's readings, although for now, their negative tone has not been particularly strong. IHS Markit's leading index for the Polish industry has fallen to the lowest level since November 2016 and reached 52.3 points (consensus of 53.4 points). In a comment to the data economists of IHS Markit, "the loss of momentum was underlined by an easing in new order growth, and output expansion softening to its slowest in nine months."

In general, it is worth pointing out that the economic situation in the region has been relatively good and that negative PMI reports have been significantly less influential than the political issues. The zloty may remain relatively weak, even during maintenance of the persistently positive scenario for emerging economies (downward pressure on the dollar).


1 Aug 2017 12:27|Marcin Lipka

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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