A weaker yen is pushing the capital flow towards the dollar, and has put downward pressure on the EUR/USD. Uncertain signals for crude in the recent hours. The zloty remains fairly weak despite positive global sentiment.
14.00: Balance of payments from Poland (survey: current account balance: +459 million euro).
14.30: Retail sales from the US (survey: +0.1% m/m and +0.3% m/m excluding cars and gasoline.
20.00: Beige Book from the US.
Weaker yen
A significant downward pressure has been observed on the Japanese currency in the recent hours. The USD/JPY rose around 100 pips from yesterday and topped the 109.20 mark. There was no major news which started the yen’s slide, but it is possible that new projections from the IMF put some pressure on the currency. The Fund expects that the Japanese economy will shrink in 2017.
It is also possible that the JPY is driven by sellers, due to better than expected data from China. Much higher export was fairly easy to predict by taking into account how volatile the trade reports are around the Chinese lunar year (we wrote about it last month). The holiday lands in either January or February, so the publication might be disturbed, even in April, until all seasonal issues dissipate.
Regardless, the reason which pushed the JPY lower was that this move generated some buying pressure on the dollar. As a result, the EUR/USD dropped toward the 1.1300 level. Regarding the future “greenback” behaviour, it is worth noting today’s retail sales publications from the US. If the data fails to meet expectations, the GDP reading for the first quarter from the US may be very disappointing. It may keep the dollar under pressure for longer, due to the reduced expectations for the June interest rate hike.
Contradicting signals
In the recent hours, the oil market generated many signals. Yesterday, the Interfax news agency reported that before the Doha meeting, Saudi Arabia and Russia had already agreed on the production freezing deal. It should be regarded as an oil positive report.
A few hours later, the EIA reported its monthly energy outlook. While analysing the data, it is worth noting that the April oil output projections were revised significantly to the downside. In March, the EIA estimated the average daily crude production for 2016 at 8.67 million barrels, and 8.19 for the following year. Now it is 8.60 and 8.04, respectively.
In 2015, the US produced 9.43 million barrels a day. This means that the production may drop to almost 1.5 million barrels a day in two years. If the estimate turns out to be true, the global glut may be completely erased. This should bring another upward pressure both on the WTI and on the Brent.
In the evening, the API reported a higher weekly inventory build-up in the US than the market participants expected. It suggest that today’s EIA report, which traditionally brings more attention to the market, can show that the inventory may rise to an all-time record high level. As a result, it might be a negative signal for crude oil.
Since this morning there have been contradicting reports regarding the participation of the Iranian minister of oil in the Doha meeting. Firstly, news agencies citing Twitter messages from Seda reportedly announced that Bijan Namdar Zanganeh would not attend the talks in Qatar. Later, it turned out that the minister hadn’t made up his mind on Doha attendance.
We should expect that similar uncertain news will appear at least to the Doha meeting, which is scheduled for Sunday. It is also worth noting that if more reports confirm the deal, then its future effect may be weaker than when it is actually announced.
The zloty remains weak
The Polish currency remains quite weak. The zloty is not able to take advantage of the better global sentiment or more bullish pound valuations, which may suggest that the Brexit risk has lessened slightly. Additionally, despite global euro weakness, the EUR/PLN remains close to 4.30.
The weaker zloty condition is also clearly seen in comparison to the forint. The PLN/HUF dropped toward 72.5, which is the lowest level in almost a month. The zloty also looks much weaker against the dollar. The USD is moving to test the 3.80 level.
As we wrote yesterday the risks for the zloty may mount further if the global sentiment deteriorates. Then, both the EUR/PLN and USD/PLN may quickly rise above 4.30 and 3.80, respectively. Regarding today’s balance of payments publication, it should not have a significant impact for the PLN valuation.
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.
A weaker yen is pushing the capital flow towards the dollar, and has put downward pressure on the EUR/USD. Uncertain signals for crude in the recent hours. The zloty remains fairly weak despite positive global sentiment.
Weaker yen
A significant downward pressure has been observed on the Japanese currency in the recent hours. The USD/JPY rose around 100 pips from yesterday and topped the 109.20 mark. There was no major news which started the yen’s slide, but it is possible that new projections from the IMF put some pressure on the currency. The Fund expects that the Japanese economy will shrink in 2017.
It is also possible that the JPY is driven by sellers, due to better than expected data from China. Much higher export was fairly easy to predict by taking into account how volatile the trade reports are around the Chinese lunar year (we wrote about it last month). The holiday lands in either January or February, so the publication might be disturbed, even in April, until all seasonal issues dissipate.
Regardless, the reason which pushed the JPY lower was that this move generated some buying pressure on the dollar. As a result, the EUR/USD dropped toward the 1.1300 level. Regarding the future “greenback” behaviour, it is worth noting today’s retail sales publications from the US. If the data fails to meet expectations, the GDP reading for the first quarter from the US may be very disappointing. It may keep the dollar under pressure for longer, due to the reduced expectations for the June interest rate hike.
Contradicting signals
In the recent hours, the oil market generated many signals. Yesterday, the Interfax news agency reported that before the Doha meeting, Saudi Arabia and Russia had already agreed on the production freezing deal. It should be regarded as an oil positive report.
A few hours later, the EIA reported its monthly energy outlook. While analysing the data, it is worth noting that the April oil output projections were revised significantly to the downside. In March, the EIA estimated the average daily crude production for 2016 at 8.67 million barrels, and 8.19 for the following year. Now it is 8.60 and 8.04, respectively.
In 2015, the US produced 9.43 million barrels a day. This means that the production may drop to almost 1.5 million barrels a day in two years. If the estimate turns out to be true, the global glut may be completely erased. This should bring another upward pressure both on the WTI and on the Brent.
In the evening, the API reported a higher weekly inventory build-up in the US than the market participants expected. It suggest that today’s EIA report, which traditionally brings more attention to the market, can show that the inventory may rise to an all-time record high level. As a result, it might be a negative signal for crude oil.
Since this morning there have been contradicting reports regarding the participation of the Iranian minister of oil in the Doha meeting. Firstly, news agencies citing Twitter messages from Seda reportedly announced that Bijan Namdar Zanganeh would not attend the talks in Qatar. Later, it turned out that the minister hadn’t made up his mind on Doha attendance.
We should expect that similar uncertain news will appear at least to the Doha meeting, which is scheduled for Sunday. It is also worth noting that if more reports confirm the deal, then its future effect may be weaker than when it is actually announced.
The zloty remains weak
The Polish currency remains quite weak. The zloty is not able to take advantage of the better global sentiment or more bullish pound valuations, which may suggest that the Brexit risk has lessened slightly. Additionally, despite global euro weakness, the EUR/PLN remains close to 4.30.
The weaker zloty condition is also clearly seen in comparison to the forint. The PLN/HUF dropped toward 72.5, which is the lowest level in almost a month. The zloty also looks much weaker against the dollar. The USD is moving to test the 3.80 level.
As we wrote yesterday the risks for the zloty may mount further if the global sentiment deteriorates. Then, both the EUR/PLN and USD/PLN may quickly rise above 4.30 and 3.80, respectively. Regarding today’s balance of payments publication, it should not have a significant impact for the PLN valuation.
See also:
Afternoon analysis 12.04.2016
Afternoon analysis 11.04.2016
Daily analysis 11.04.2016
Afternoon analysis 08.04.2016
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