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Daily analysis 05.01.2017

5 Jan 2017 13:16|Marcin Lipka

Tone of the minutes was rather hawkish. However, the market’s reaction was unclear. Due to the changes on the Chinese yuan, the dollar wore-off. Macro data series from the USA. The zloty benefits from the global sentiment. The EUR/PLN is near 4.36.

Most important macro data (CET – Central European Time). Estimations of macro data are based on Bloomberg information, unless marked otherwise.

  • 14.15: ADP data regarding new workplaces in the private sector (estimation: 175k).
  • 16.00: ISM for the American services sector (estimation: 56.8 points).
  • Tomorrow at 14.30: Data from the American Labor Department (estimations: unemployment rate - 4.7%; the employment changes in non-agricultural sector - positive 180k; changes in hourly wage – positive 2.8%).

Hawkish minutes

This morning the EUR/USD went above 1.0550, what could suggest that yesterday’s minutes from the Federal Reserve had a dovish tone. However, it’s worth noting that the dollar was in a relatively positive condition shortly after the minutes. The American currency had begun to wear-off due to the events that occurred during the Asian session.

In our opinion, the minutes contained a few statements, which indicate that the FOMC members will sustain their suggestions regarding the future interest rates. Moreover, perhaps these suggestions will be increased, if the fiscal suggestion program begins to take a clearer shape.

The minutes state that, “about half of the participants incorporated an assumption of more expansionary fiscal policy in their forecasts.” On one hand, this suggests that a large percentage of the FOMC members believes in fiscal stimulation. On the other hand, if a consistent program of decreasing taxes, as well as of increasing expenses (due to cooperation between the Congress and Trump, for example), the rest of the Fed members may include this in their estimates. Moreover, this may increase the plan of three rate hikes for this, as well as for the next year.

What’s also interesting is that many FOMC members took note that there is a risk of unemployment rate going below its natural level. This would force the Committee to raise interest rates faster than it is currently expected, in order to decrease the potential inflation pressure. Therefore, we can see that the majority of the Fed members are not excluding more rapid monetary tightening.

The dovish fragments included statements about uncertainty regarding the fiscal policy, as well as the global situation (the dollar’s impact on inflation, for example). However, the entire message was quite hawkish.

Chinese commotion and American data

Since yesterday, quotations of the Chinese yuan outside mainland China (CHN) increased approximately 2% against the dollar. This behavior might have been caused by combination of the globally weaker dollar, anxieties for the larger capital flow control or a sudden reduction of positions, which are set on a wear-off of the Chinese currency.

Regardless of what was the actual reason for this move, it caused significant global changes. They include depreciation of the USD/JPY or growths on the EUR/USD. However, it seems that this commotion is short-term and it won’t change the trend on the dollar.

It’s possible that investors will refocus on the American data by the end of the week. Today, we will know the ADP, as well as the ISM readings and Even a slightly surprising result should support the American currency. However, exceeding the consensus for changes in salaries may appear difficult. Economists estimate a 2.8% YoY increase, which would be the highest in seven years.

Zloty benefits from the global sentiment

The dollar’s overvalue caused the EUR/PLN to test the area of 4.36. Moreover, the USD/PLN was pushed below 4.15. This move was consistent with behavior of the forint against the main currency pairs. The PLN/HUF remained near the level of 70.50.

It will be difficult for the zloty to remain in lower area of the 4.35-4.40 range. The EUR/PLN will most likely return to the level of 4.38. Moreover, the USD/PLN may return near the 4.20 level, if the situation on the yuan becomes normal and the American macro data is positive.

5 Jan 2017 13:16|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.

See also:

4 Jan 2017 16:37

Afternoon analysis 04.01.2017

4 Jan 2017 13:21

Audio analysis 04.01.2017

4 Jan 2017 13:15

Daily analysis 04.01.2017

3 Jan 2017 16:17

Afternoon analysis 03.01.2017

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