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Daily analysis 15.01.2018

15 Jan 2018 12:24|Marcin Lipka

The US currency was hit by another strong wave of depreciation. The EUR/USD pair is close to the 1.2300 boundary. The dollar index (DAX) reached new 3-year lows. Positive sentiment towards emerging markets and the negative dollar helped the zloty. The USD/PLN pair fell below the 3.40 level. The euro stayed in line in relation to the Polish currency.

The most important macro data (CET - Central European Time). Surveys of macro data are based on information from Bloomberg unless noted otherwise.

  • 2:00 p.m.: Balance of payments from Poland. Current account balance for November (estimates: surplus 693 million EUR),
  • 2:00 p.m.: Consumer inflation (CPI) from Poland (estimates: 0.2% MOM and 2.0% YOY).

Another wave of dollar depreciation

The EUR/USD pair was quoted above the 1.2250 level in the morning. This result is 2.5% higher than on Thursday morning. Moreover, the main currency pair reached three-year highs. In turn, the dollar appreciated, reaching three-year lows, the DAX index was the lowest since the beginning of 2015. Why are we witnessing such sharp changes in the recently?

Friday's data on inflation from the US has been with great importance apart from the market's reaction to Thursday's minutes from the ECB. CPI reading (in core term) for November was higher than economist expectations (1.8% YOY vs. 1.7% YOY). It caused a significant increase in yields of the US Treasury bonds. However, it was totally ignored by the currency market, the dollar did not appreciate. A few hours later, the yields returned to pre-publication levels and the dollar depreciated. The situation is a perfect description of sentiment towards the US currency.

The EUR/USD continued to appreciate during today's trading session in Asia or Europe (at the end of the week the main currency pair reached the 1.2200 level, a 3-year high). The dollar was under pressure when the Chinese currency started to strengthen significantly in relation the dollar and amounted its highest level for more than two years. Mainly, it was due to the announcement from Bloomberg on implementing the yuan to the German Bundesbank's reserve basket. However, the changes in central bank wallets are being gradually introduced, but it is another reason for negative sentiment towards the dollar to deepen.

Due to the dollar's weakness and the strength of some emerging market currencies, some pair charts look really interesting (for example, the Israeli shackle's behaviour). The USD/ILS pair dropped below 3.40 today (similar to the USD/PLN pair). However, the USD/ILS, unlike USD/PLN, has been at its lowest levels since mid-2011. Moreover, the USD/ILS pair needs 6% to reach its lowest levels for over 20 years, which means that the Israeli currency compared to the US would have been even stronger than just before the crisis in 2008 when one dollar cost 2 PLN.

Some emerging market currencies have noted spectacular changes since the beginning of the year. In less than two weeks, the Colombian and the Mexican peso appreciated almost 4.5% in relation to the dollar. The Brazilian real also appreciated significantly (over 3%). The top ten also included the Hungarian forint, the Polish zloty and the Czech koruna with an appreciation of 2.9% and 2.5% respectively.

In addition, a well-established global sentiment (the US indexes have increased by 1/4 over the last year) lead to capital flows to emerging markets. On Friday, the Financial Times stated (based on EPFR data for 2017) that almost 70 billion USD net has flown to debt markets in emerging countries. This is the highest since at least 2004, the previous highs did not exceed 40 billion USD. During the week ending 3rd January, the capital inflow amounted to 1.8 billion USD. This is likely to be the main factor shaping the currencies' behaviour today, and not, as usual, the difference between interest rates between currency areas.

Dollar below 3.40

The global dollar weakening and the EUR/PLN quotation stabilisation resulted in USD/PLN falling below 3.40, at the same time reaching new 3-year lows. As we mentioned in the previous paragraphs, this is mainly due to global processes.

In the afternoon, the Polish Central Statistical Office (GUS) will publish final data on inflation from Poland. Giving the fact that zloty valuation currently depends on strong external sentiment, detailed changes in prices in each category are unlikely to translate to changes on the zloty. Also, November's current account balance of Poland will probably be ignored. If the global sentiment does not improve strongly (no session in the US today), then the afternoon quotations may be close to the current levels.

15 Jan 2018 12:24|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:

12 Jan 2018 15:36

Afternoon analysis 12.01.2018

12 Jan 2018 12:36

Daily analysis 12.01.2018

11 Jan 2018 15:16

Afternoon analysis 11.01.2018

11 Jan 2018 12:47

Daily analysis 11.01.2018

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