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Daily analysis 20.07.2017

20 Jul 2017 12:27|Marcin Lipka

Important events for the European currency are included in the ECB meeting and Mario Draghi’s conference. UK data is better than expected, but comments on Brexit have kept the pound low. The zloty continues sales. The EUR/PLN pair has been rising above the 4.2100 border.

Macro key data (CET time- Central-European). Estimates of macro data are based on Bloomberg information unless marked otherwise.

  • 2.30 p.m.: Post-ECB meeting message and the press conference with Mario Draghi,
  • 2.30 p.m.: Weekly data on the initial jobless claims from the US (estimate: around 245 k).

Difficult task for Draghi

The President of the European Central Bank (ECB) is facing a difficult task today. On one hand, he should pay attention to better prospects for the European economy. On the other, he will probably try to cool down expectations for a quick exit from the ultra-mild monetary policy. Too-hawkish comments can further strengthen the euro, which has already been at its highest levels since the end of 2014 in relation to the euro area currency basket.

A relatively dovish message can be achieved by sustaining suggestions that the QE program can be extended in the statement. While this extension, in the current context, is very unlikely, the maintenance of this wording may show that the ECB is still relatively dovish towards the monetary policy.

In turn, questions from reporters during the conference will most likely arise regarding the recent increase in value or the perspective of winding down the QE. Draghi may, of course, emphasise that the ECB does not interfere with the fluctuating exchange rate, but has been monitoring the recent increases in the euro and their impact on inflation (a dovish message). During today's meeting, it will be relatively difficult to "get out" from the likely discussion of winding down the QE. However, this topic can also be addressed as dovish, arguing that discussions have been ongoing, but no decisions have been taken yet, and the ECB is waiting for the further macro data (September's macroeconomic projections).

So, if the direction of previous paragraphs is being followed by a message from the ECB, the euro's value could be expected to drop. Investors may also recall the fact that after Draghi's speech in Sintra, the Bloomberg agency, in quoting an anonymous source, pointed out that the market had misinterpreted the suggestion of the ECB president.

On the other hand, it is also worth noting that the press conference has its dynamics. Sometimes, the sequence of questions and answers does not necessarily correspond directly to the ECB's general message. The appearance of several more hawkish statements (for example, the "reflation" as it was in Sintra) could trigger a sudden appreciation of the euro. The main scenario is rather dovish from the ECB, but the press conference itself is loaded with a lot of uncertainty.

Sales in Great Britain better than expected

In the morning, the British National Bureau of Statistics (NSS) published retail data. It was slightly above expectations (2.9% YOY vs 2.5% YOY). In particular, the increase in sales of clothing and footwear where the sales' volume has increased by 6.2% YOY (the value of 9.1%). ONS has noted that a warm June could have increased a seasonal demand in this category.

Generally, the data should strengthen the pound. The sterling’s appreciation movement was short and limited. Around midday, the GBP/USD pair slid and tested the area of 1.2950 (in the morning was 1.3030). It is possible that investors have moved their attention to matters connected with Brexit again. On Sunday morning on BBC radio, Liam Fox (the Treasury Secretary) has said that the United Kingdom has been able to survive without an agreement with the EU about regulations connected with Brexit. GBP/PLN, although weaker to the zloty, has been near the level of 4.75 again.

The zloty has remained slightly weaker

The Polish currency incurred slight losses. The EUR/PLN moved around 4.21-4.2150 and the dollar crossed the level of 3.66 PLN. It is also clear that the zloty has been in slightly weaker shape - both to the Czech and the Hungarian currency. The PLN/CZK pair and the PLN/HUF have fallen by 0.3% and 0.4% from Monday evening, respectively. That movement may also be partly related to the situation in national politics.

As far as today's impact of the ECB meeting as far as the zloty is concerned, the EUR/PLN may return to around 4.20 as it has been dovish (details in previous paragraphs). On the other hand, with the hawkish message (deletion of the part about QE extension) and a conference supporting the opinion from Sintra (the reflation), the EUR/PLN may be heading towards 4.23-4.24.


20 Jul 2017 12:27|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:

19 Jul 2017 15:26

Afternoon analysis 19.07.2017

19 Jul 2017 12:58

Daily analysis 19.07.2017

18 Jul 2017 15:22

Afternoon analysis 18.07.2017

18 Jul 2017 12:52

Daily analysis 18.07.2017

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