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Daily analysis 05.05.2017

5 May 2017 12:28|Marcin Lipka

Rapidly changing oil price shaped the market sentiment and caused more volatility in the currency market. Today’s data from the US will be important but ultimately shouldn’t change the market’s current trend. Zloty trading also impacted by the oil price movement.

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

  • 14.30: April’s US labor market data: unemployment rate (estimates: 4.6%), nonfarm payrolls (estimates: +190k), average hourly earnings (estimates: +2.7% YoY).

Oil dictates today’s trading

Only yesterday, before midday, the price of WTI crude oil was 47.5 USD a barrel. The first wave of price drop was seen at the beginning of the US trading session and caused a decrease of 2 USD. The second wave happened during the Asian session and pushed the priced below the 44 USD barrier. The price of oil fell by 8% during the last 24 hours.

It’s hard to determine what caused such a violent price decrease of the fundamental commodity used in transport. The last fundamental data were published on Wednesday. Although the report showed a further increase in shale oil production in the US, the other parts of the report (regarding inventories, gasoline or import) didn’t give a reason to such a price drop. Investors actions on Wednesday didn’t point to anything abnormal, as well.

There haven’t been any official OPEC statements regarding production cuts either. Production cuts in the other half of the year remain still the basic scenario. There were some speculation on the market (cited by Bloomberg TV’s guests) about a change in Saudi Arabia’s strategy which would see releasing the oil market just like in 2015 and 2016. However, such information hasn’t been backed by anyone and seem to be highly unlikely at the moment.

The oil price drop also translated to a worse condition of several industrial commodities. As a result, they started to influence commodity currencies (the Canadian dollar, South African rand and Mexican peso all were losing value). However, the US dollar weakened in relation to the yen or the euro. This could be the result of fears about the continuation of a relatively good condition of the global economy and maintaining a steadily rising inflation. Should these factors start to deteriorate, the probability of further rate hikes in the US could decrease and the dollar could be under pressure. For the time being, though, such fears seem to be rather short term and one shouldn’t expect a repeat of the 2016 situation. This scenario could, however, be “played” by the market which could focus the attention of investors on several classes of assets, causing nervousness on the currency market.

US data

The US labor market data will be the main point of today’s session. As it happened in previous months, the data regarding average earnings will be scrutinised the most. Should they increase above 2.7% on a yearly basis, the dollar would receive a positive boost. Investors expect the nonfarm payrolls to rise by 190k. Taking into account Wednesday’s ADP data and that the previous month was pretty bad in this regard, today’s data would need to visibly exceed the 190k estimate (by about 30k-40k) to generate a positive signal for the dollar.

As for the effect for the dollar in the next few days, it shouldn’t be particularly strong. Even very good readings probably wouldn’t cause the trend on the dollar to change – especially until we see the disturbance on the commodity market to cease. On the other hand, if the average hourly earnings growth is reported 2.5% or below, the fears about a steady inflation path and GDP growth could be deepened and cause a further depreciation of the US currency. It could also move the trading on the main currency (EUR/USD) slightly above the 1.100 barrier.

Złoty także zależny od surowców Zloty also influenced by commodities

The dollar market wasn’t the only one affected by the oil situation. Zloty also depreciated yesterday evening as the fall in commodity prices caused an increase in risk aversion. Some of the losses were reversed and the EUR/PLN pair returned to the 4.22 level. It shows that this factor could be important in zloty’s valuation in the future.

As for zloty’s reaction to the US labor market data, only a significant deviation from the market consensus could cause substantial movement in zloty’s whole basket. The base scenario sees zloty’s value in relation to the euro or franc not to diverge from current levels. The USD/PLN pair could be the most susceptible to the US labor market data, although potential movements shouldn’t exceed 2 gr to the current price.


5 May 2017 12:28|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 May 2017 15:22

Afternoon analysis 04.05.2017

4 May 2017 12:15

Daily analysis 04.05.2017

2 May 2017 15:22

Afternoon analysis 02.05.2017

2 May 2017 12:26

Daily analysis 02.05.2017

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