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Daily analysis 11.10.2017

11 Oct 2017 12:10|Marcin Lipka

Catalonia's lack of clear statement on independence combined with a good global sentiment and the absence of yields' growth in US debt support the EUR/USD and EUR/CHF pairs. Important minutes from the Federal Reserve. The zloty benefited from a good sentiment and it has been strengthened to the main currencies. The Polish currency in relation to Hungarian one without major changes.

Key macro data (CET time - Central European). Estimates of macro data are based on Bloomberg data unless otherwise noted.

  • 8.00 p.m.: Minutes publication from September's Federal Reserve meeting.

Good sentiment on the market

Yesterday evening, the Catalan authorities refrained from a clear independence declaration and suggested talks with Madrid. It maintained a relatively good mood on the European currency. Today in the morning, in addition, the yields of the Spanish bonds maturing in 10-years slumped by about 5 core points to 1.65%, which confirmed that investors' concerns about the cohesion of this country have been reduced.

Additionally to the events in Europe, the US session ended up with further historical records on the S&P 500 index. A good shares' condition combined with the lack of growth in the yields of the government bonds caused that the dollar couldn't pare some losses. Thanks to this, today before midday the EUR/USD pair tested the area around 1.1840. The Swiss currency depreciated in the morning and the EUR/CHF pair climbed up to the 1.1540 boundary.

Due to the fact that there are no key macroeconomic readings scheduled in the coming hours, the market is more likely to wait for the evening minutes publication from September's Federal Reserve meeting. Three weeks ago, both macroeconomic projections (three rate hikes next year) and a press conference were quite hawkish.

Relatively hawkish tone of minutes should be expected in the context of rate hikes' suggestion until the end of the year (12 out of 16 FOMC members suggested monetary tightening until the end of the year). It seems, however, that this fact should not clearly support the US currency, as one increase is practically included in the Treasury bonds quotations.

Investors will probably be more focused on the inflationary processes described in minutes. If the recent low CPI and PCE readings are evaluated by most Federal Reserve members as transitory (as Janet Yellen said) then the dollar may appreciate. The USD can also be supported by comments on the general labour market condition and the expected increase in wages. If such statements were highlighted in FOMC's message, the market could associate them with the latest report of the Bureau of Labor Statistics, according to which the wages increased by 2.9% YOY. Although this date was probably disrupted by hurricanes, it suggests a hawkish rather than a dovish approach to monetary policy.

The US currency may be negatively affected by the lowering of the target interest rate level from 3.0% to 2.8%. A widespread discussion on this issue may reduce the hypothetical dollar's appreciation due to the aforementioned factors. In general, minutes should confirm the Fed's intention of further monetary policy tightening. Moreover, they may be positive for the USD, especially if suggestions for further rate hikes go beyond the current quarter.

The sentiment in favour of the zloty

Before midday, the Polish currency clearly appreciated in relation to the euro, the dollar or the franc. In the first part of the European session, the EUR/PLN pair decreased to approximately 4.2800 boundary and the CHF/PLN pair fell to 3.71. However, it should be noted that the zloty's valuation in relation to the forint remained practically unchanged. This suggests that all movements are generated by global sentiment and not by the exceptionally good zloty's condition in the region.

The afternoon may be slightly less favourable for the zloty if it turns out that minutes from the Federal Reserve are more hawkish than the market expects (details in the previous paragraphs). However, the hypothetical zloty's weakening should not be significant due to a good sentiment towards the markets of our region. As a result, the EUR/PLN pair should remain below the 4.30 boundary, despite the risk that the zloty's value will fall as a result of the Federal Reserve statements.

11 Oct 2017 12:10|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:

10 Oct 2017 15:00

Afternoon analysis 10.10.2017

10 Oct 2017 12:36

Daily analysis 10.10.2017

9 Oct 2017 15:34

Afternoon analysis 09.10.2017

9 Oct 2017 12:39

Daily analysis 09.10.2017

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