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Daily analysis 06.04.2016

6 Apr 2016 13:35|Marcin Lipka

Positive data from the USA. However, the appreciation of the dollar was limited due to a weaker global sentiment. Minutes from the Fed are at the center of attention. New information regarding the meeting in Doha. The zloty should become more stable after the announcement from the MPC today.

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

  • 16.00: Press conference after the MPC meeting.
  • 20.00: Minutes from the recent Federal Reserve meeting.

Data is better, but sentiment is worse

A rather weak market sentiment is not consistent with better readings from the recent hours. The most positive surprise is yesterday's reading of the ISM from the services sector. It was not due to its general value (it did not exceed economists expectations much), but due to a solid rebound of the crucial components.

According to ISM, the business activity increased to 59.8 points. This result puts the reading near the values from the years 2014 and 2015. This is a visible rebound in comparison to February and January. In these months, the data was 57.8 and 53.9, respectively. Components of new orders also looked positive, especially when concerning export (it reached the value of 58.5 points, which was its second best result for three years).

Thus, the data from yesterday may decrease anxieties regarding the American economy. Combined with a positive ISM reading from the industry, and an increase in export orders, it suggests a stabilization of the global situation. In general, this is a positive signal for the dollar. However, this was not reflected in the market reaction yesterday, due to a deterioration of the global sentiment in the morning.

Minutes in the center of attention

Today, the participants of the currency market will mainly focus on the record of discussion from the Federal Reserve meeting in March. The first significant matter is most likely the evaluation of risks balance for the American economy. This did not appear in the two previous announcements. Thus, it decreased speculations that the Fed is not able to decide whether the balance is negative or neutral.

The second significant matter are the global dangers. They probably were the cause for a decrease in the future cycle of interest rates in March. However, it is worth noting that this topic got quite used, and it is unlikely that it would generate a dovish signal.

Discussions about inflation should also be interesting. Before its meeting, the Fed received information that the CPI, with the exclusion of fuel and food, went to its highest level since 2008 (2.3% y/y). Some of the FOMC members (including Yellen and Evans) doubt that the growth trend will endure. However, it is possible that some members of the Fed may focus on this element. As a result, it may be received as a dovish signal, if other signals are included in the prices.

In conclusion, despite the recent dovish announcement, as well as comments from the monetary authorities (a suggestion of very mild monetary easing), it is possible that the minutes will consist of more hawkish opinions. If the market sentiment improves by the evening, the minutes may allow the EUR/USD to reach the area of 1.1300, or even slightly beyond.

Contradictory signals from oil market

For the past few days, oil was under a seller pressure. Moreover, the sale accelerated after the comments from the vice-heir to the throne of Saudi Arabia with Bloomberg television. Mohammed bin Salman suggested that the agreement regarding freezing of the production, will not work out without the participation of Iran.

However, the OPEC representative from Kuwait spoke in a completely different tone yesterday. Nawal al-Fezaia told Bloomberg television that the producers may achieve agreement regarding freezing of the production at the meeting in Doha. Moreover, they may additionally establish a minimum oil price.

Thus, it is currently quite difficult for the market to estimate what decisions will be made in Doha on April 17th. However, it is possible that some limits in supply will be announced, despite the fact that Iran will not participate. Considering the current situation in the oil market (especially decreasing production in the USA), this information should translate to an increase in WTI and Brent.

Slight nervousness on zloty

The visible decreases on the European and American floors until the end of yesterday's session, sustained a negative global sentiment, and caused the EUR/PLN to reach the level of 4.26. However, due to calmer situation today, evaluation of the euro returns within the limits of 4.25 PLN.

Publication of the announcement from the March meeting of the MPC should not be surprising. In our opinion, the Council will continue to show that it conducts the monetary policy in a predictable way. Moreover, it will probably suggest leaving interest rates at the current level. With the help of a neutral sentiment, this message should stabilize the EUR/PLN near its current levels within the forthcoming days.

On the other hand, quotations of the dollar may be slightly higher than they were recently. A positive sentiment should cause it to gain against the PLN. However, a general weakness of the zloty related to risk aversion, may limit overvalue of the dollar with a weaker sentiment. Thus, it is possible that the USD/PLN will slowly go towards the area of 3.80.

6 Apr 2016 13:35|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:

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Afternoon analysis 04.04.2016

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Daily analysis 04.04.2016

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