Daily analysis 07.03.2017

German industry quoted the largest decline of the orders index in eight years. However, this shouldn’t be disturbing for the time being. Increasing spread between the profitability of the European bonds and the profitability of the American bonds, is negative for the EUR/USD. Anxieties over the British economy overvalue the pound. The zloty is slightly weaker due to the neutral sentiment within the region.

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

• No macro data that could significantly impact the analyzed currency pairs.

Depreciation of EUR/USD

This morning, Destatus informed that the German industrial orders index decreased by 7.4% MoM (seasonally equalized), which was its worst result in eight years. The largest limit was quoted in the local market (10.5% MoM). The result of the foreign market was at the level of 4.9%. Theoretically, this may be a pessimistic forecast for tomorrow’s data regarding the industrial production, as well as a negative signal for the German economy.

However, the previous data has shown that the past few months were very unstable when it comes to the industrial orders index. The industrial production index has been less volatile, but it has not been consistent with the order index. In general, the twelve-month average in the Year over Year interpretation (for both the industrial production and the industrial orders) has been within the range of 0.0% - 1.7%. Even though we are closer to the upper limit of this range, these values are still relatively low. For example, in 2014 the twelve-month average was above 5% and 2.5% for the industrial orders and the industrial production, respectively. Therefore, we can’t explicitly say that a slow revival of the German industry is coming to an end, for the time being.

Today’s depreciation of the EUR/USD was mainly caused by the behavior of treasury bonds. The profitability of the German two-year bonds decreased by 5 base case points (negative 0.87%) and the profitability of its American equivalent has reached the level of 1.31.%. The spread between these bonds is currently at the level of 2.2 percentage points, which is its largest value in seventeen years.

These moves (especially in the case of the German bonds) might have been caused by the data from the Swiss National Bank (SNB). In February, this institution has increased its currency reserves by 8 billion francs, to 668 billion (historical record). A significant portion of these reserves has been accommodated in the euro zone’s treasury bonds. This may prove that the SNB is trying to prevent the franc from becoming stronger.

What’s even more interesting is that the Czech Central Bank increased its currency reserves from 96 billion to 105 billion euro. This institution has been intervening in the currency market, before resigning from keeping the EUR/CZK exchange rate above the 27 level (this is scheduled for approximately mid-2017). Moreover, both of these central banks are most likely increasing their involvement in the German bonds. This, combined with the ECB quantitative easing operation, has been increasing the above mentioned spread. Moreover, this causes additional pressure on the euro and shows that investors are still anxious towards the euro zone’s stability before the elections.

Weaker pound

The pound’s situation has been deteriorating. Due to the stronger dollar, as well as the weaker pound, the GBP/USD was pushed below the 1.2200 level, which was its lowest since mid-January.

Moreover, today’s news from the British economy may have a negative impact on the pound as well. According to the data from the British Retail Consortium (BRC) (cited by Bloomberg), the average retail sales index decreased by 0.2% YoY over the past three months (excluding food). This is this index’s worst result in more than six years.

In her commentary to the data, the BRC chairwoman, Helen Dickson, claimed that the Brits are more careful in spending money on goods that are not unnecessary. The pound has been losing against the zloty as well. However, this move is not as significant as in the case of the dollar, due to the weaker zloty. The GBP/PLN is approximately 0.04 PLN below the 5.00 level.

Slight wear-off on PLN

At noon, the EUR/PLN was near 4.31 and the USD/PLN was near the 4.08 level. These changes are not large in comparison to yesterday’s session. However, they clearly show that the zloty has been losing value. This has been confirmed by the PLN/HUF behavior, which reached the area of 71.70 (0.2% less than yesterday).

The zloty may be weakened by both the global strengthening of the dollar and the lack of positive signals from the European stock exchange market. Moreover, investors may fear that tomorrow’s MPC meeting may appear too dovish in the context of increasing inflation, as well as of increasing likelihood of faster monetary tightening in the USA. Due to this, the zloty may lose approximately 0.02 PLN against the main currencies tomorrow.