Daily analysis 20.11.2017

20.11.2017 12:06|Bartosz Grejner

The collapse of coalition talks in Germany increased the volatility in the currency market, however, the euro returned to the level before the news broke out. The pound was stronger after comments made by the Chancellor of the Exchequer. The Polish currency awaits today’s macroeconomic data.

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

  • 2 p.m.: Industrial output in Poland (estimate: 10.4% year-on-year),
  • 2 p.m.: Retail sales in Poland (estimate: 8.2% year-on-year),
  • 2 p.m.: Producer inflation in Poland (estimate: 2.9% year-on-year).

Snap election in Germany?

Shortly before midnight, news broke that Angela Merkel’s talks to form a new four-party government fell apart. According to news outlets (Bloomberg, Reuters, etc.), a dispute regarding the migration policy could be the reason behind the coalition talks fiasco.

This was the reason why the Free Democratic Party walked away from the deal. As such, the probability of snap elections in Germany will increase, which could also increase the level of uncertainty in the market. However, a minority government, formed by Angela Merkel’s CDU, is also on the table.

The euro initially reacted negatively to this information – the EUR/USD pair fell from 1.18 to 1.172 during the Asian session. DAX futures also lost approx. 100 points in comparison to Friday’s closing levels.

The start of the European session brought some better sentiment – the main currency pair returned to 1.18 levels and the aforementioned DAX futures pare all losses. The euro has been supported by a good condition of the eurozone’s economy and problems with introducing the tax reform in the US, as well.

Therefore, some market participants could have seen the late night dip in the euro as a good occasion to buy the currency. However, the volatility could increase in later hours. The German president, Frank-Walter Steinmeier, is scheduled to make a statement at 2 p.m. CET.

The pound gained

The British currency was in a better condition today – it appreciated to approx. 1.328 USD, which was the highest level since November 2nd. Philip Hammond, the Chancellor of Exchequer, said on BBC yesterday that Britain is “on the brink of making some serious movement forward” and was close to breaking the impasse in negotiations with the EU.

The main problem that remains is the Brexit bill – the EU demands 60 billion euro and Theresa May, up until now, was willing to pay only 20 billion euro. According to The Times, the government of Great Britain could increase this number two times. This could move both sides closer to reaching a consensus which could, in turn, open the door for trade talks.

A meeting of a Theresa May’s Brexit cabinet sub-committee is scheduled for later today, which could see some decisions being made regarding the bill for leaving the EU. Should any arrangements that significantly increase the current amount (20 billion euro) be made, they could support the pound and push it closer to 1.34 USD.

No major changes to the zloty

The fiasco of coalition talks in Germany also caused a slight drop in the value of the zloty. However, the pullback seen in the EUR/USD to 1.18 also caused the Polish currency to return to levels close to which we saw on Friday evening. On the other hand, today a globally stronger pound was gaining approx. 0.3% to the zloty – the GBP/PLN pair reached the highest level in a week (4.775) in the early trading hours.

At 2 p.m., the Polish Central Statistical Office (GUS) will publish October’s industrial output, retail sales and production inflation (PPI) data. The most important will be the first two, as they could have hints regarding what to expect of the GDP growth rate in Q4.

Taking into account a very low base in 2016 and a gradual inflow of European funds in recent months, the pickup in industrial production in October could have been considerable. The median market expectations point toward a 10.4% year-on-year increase, which coupled with a retail sales growth by min. 7.5%, could cause the zloty to appreciate. In case of such a scenario, we could observe the EUR/PLN pair to move towards 4.22, close to the lowest level since mid-July.

 


Subscribe to our currency newsletter

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 the written permission from Cinkciarz.pl Sp. z o.o is prohibited.

See also:

17 Nov 2017 15:22

Afternoon analysis 17.11.2017

17 Nov 2017 12:14

Daily analysis 17.11.2017

16 Nov 2017 15:19

Afternoon analysis 16.11.2017

16 Nov 2017 11:17

Daily analysis 16.11.2017

Start chat