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Daily analysis 20.12.2016

20 Dec 2016 12:54|Marcin Lipka

The dollar’s index is near its strength records after the events in Germany and depreciation of the yen. Moreover, Janet Yellen’s testimony caused the dollar to increase. The USD/PLN was testing the 4.27 level this morning. The EUR/PLN is relatively calm.

Most important macro data (CET – Central European Time). Estimations of macro data are based on Bloomberg information, unless marked otherwise.

  • No macro data that could significantly impact the analyzed currency pairs.

Weak currencies support dollar

This morning the dollar’s index (DXY) reached the level of 103.44, which was only 0.1 percentage point below its fourteen-year record. The USD strength is a result of three elements. They suggest that this appreciation was caused by the weakness of the other currencies.

Primarily, some of the market participants were counting that Janet Yellen’s testimony would be more dovish. This caused a slight wear-off of the USD, shortly before 7.30 PM. However, last Friday we took note that Yellen’s statement at the University of Baltimore will not be strongly related to the topic of the monetary policy.

However, in order to motivate the students, the Fed chairwoman presented some statistic studies that indicate consequent improvement in the American labor market (data regarding unemployment, work offers and salaries, among others). However, it’s difficult to interpret this as a hawkish signal, or a reason for the USD strengthening. The EUR/USD was more likely pushed below 1.0450 due to unfulfilled expectations regarding the dovish message from Yellen.

The second reason were the events in Berlin. Investors are afraid that each similar event would increase the chances for populist parties to win the forthcoming elections in Germany, France and Holland.

Disturbances within the European Union may partially translate to this region’s economic condition. Increasing uncertainty may decrease consumption and investments. This may also cause depreciation pressure on inflation, as well as the necessity to sustain a mild monetary policy by the ECB for the long-term.

BoJ withdraws from its previous obligations

The third element, which has been supporting the DXY in the past few hours, was the Bank of Japan meeting this morning. The announcement from the Japanese monetary authorities suggests that Japan’s economic situation is much better than it has been indicated by the macroeconomic data.

The above mentioned announcement states that investments have been increasing in a moderate trend, increase in income of companies is at a high level and the entrepreneur sentiment has improved. The BoJ also emphasized that an increase in employment and income is stable. Moreover, private consumption has been resistant and investments in the real estate market have improved.

However, the market found the confirmation of sustaining the extremely mild monetary policy as the most significant information. This mostly refers to the excerpt about keeping the profitability of the ten-year treasury bonds near zero. Due to this, it becomes very likely that the yen will automatically wear-off, if the American treasury bonds continue to grow. During the European session, the USD/JPY returned to the area of 118. Moreover, the sale of the Japanese currency contributed to the general strengthening of the dollar.

In conclusion, the dollar became stronger due to the weakness of the other currencies, instead of an increase in the future interest rates. In our opinion, this kind of impulse is less significant for the fundamental evaluation of the USD. Therefore, if this is confirmed by an increase in the profitability of the American debt, the likelihood of a further DXY appreciation will be limited.

Limited reaction on PLN

Taking into consideration that the DXY is near its record level, as well as the events from Germany, the reaction on the zloty was relatively calm. At approximately noon, the EUR/PLN was near 4.41. Moreover, the dollar became 0.02 PLN cheaper in comparison to its level from this morning (4.27).

This kind of reaction on the zloty is caused by the fact that the USD strength is a result of the weakness of the other currencies (more details in the above paragraphs). Positive condition of the PLN is also supported by positive data from the Polish economy, which was published by the Polish Central Statistical Office, yesterday.

However, the zloty may be endangered by the forthcoming rating reviews. Yesterday, the Polish Press Agency informed that Fitch, as well as Moody’s are planning to review Poland’s loan credibility on January 13th. Due to the fact that the matter of the retirement age has become clear, the risk of rating’s downgrade increased. This may decrease the chances for the EUR/PLN to go below 4.40. Nevertheless, we continue to expect that this level will be tested in the forthcoming days. Moreover, it’s possible that the euro will go below 4.40 at the end of this year.

20 Dec 2016 12:54|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 Dec 2016 15:50

Afternoon analysis 19.12.2016

19 Dec 2016 13:21

Daily analysis 19.12.2016

16 Dec 2016 16:41

Afternoon analysis 16.12.2016

16 Dec 2016 13:11

Daily analysis 16.12.2016

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