Daily analysis 21.02.2017

Very positive economic data from the euro zone. The PMI is at its six-year peaks. The forthcoming appearance of President Donald Trump in front of the combined chambers of the American Congress. The zloty is stable against the euro. However, the USD/PLN is approaching the level of 4.10, due to the dollar’s global strength.

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

• 15.45: Initial readings of the services and the industrial PMI from the USA (estimates: 55.3 points and 55.8 points, respectively).

Remarkable data from the euro zone

The first part of the European session was dominated by positive readings from the euro zone. The PMI index for February, which combines both services and industrial sectors, increased to its highest level on seventy months (56 points). Apart from this, many other elements suggested an improvement in the economic situation.

The new workplaces index increased the most in more than nine years. We should also focus on the largest growth of export in the industrial sector since April 2011. Moreover, the entrepreneur expectations regarding the future business activity, increased to their highest level since July 2012. This is the time in which the data regarding this subindex was published for the first time.

The most surprising element concerned France, where the collective PMI increased from 54.1 points to 56.2 points. This was the first time since August 2012 when this index was better than its German equivalent. This may suggest that France is finally behind the stage of the slow GDP growth.

In his commentary to the data the IHS Markit senior economist, Chris Williamson, took note that current PMI level from both France and Germany, may develop at the pace of 0.6-0.7% QoQ over the first quarter. Theoretically, this data may increase the chances for the ECB to resign from the extremely mild monetary policy sooner than it has been announced. However, Williamson noticed that any changes in this matter are unlikely until the elections in Germany, which will occur in September.

Stronger dollar

On Monday, the EUR/USD finished the session above the level of 1.0600. This morning, the main currency pair was pushed to the level of 1.0530. What could have caused this change? Primarily, we need to take note that the EUR/USD was pushed to the area of 1.0580 during the Asian session. This was partially caused by the comments from Patrick Harker, which were published by the MNI agency.

Harker (hawkish, with the right to vote) did not rule out rate hikes in March. Moreover, he sustained his base case scenario regarding three rate hikes (25 base case points each) for this year. Even though this kind of views from Harker are not new, a wider discussion regarding rate hikes may appear to be supportive for the dollar.

Some investors may also fear the pro-dollar minutes from the previous FOMC meeting. This document will be published tomorrow. It’s possible that it will contain relatively many arguments in favor of the further monetary tightening, as well as for hypothetical impact of potential tax changes on the future interest rates.

We should also keep in mind that President Donald Trump will make his testimony in front of the combined chambers of the American Congress on February 28th. It’s possible that he will present a more detailed plan regarding economic changes. The more this plan is consistent with the plan from Republicans, the bigger the chance that it would strengthen the dollar. This also might have translated to the dollar’s strengthening this morning.

Dollar is near 4.10

The zloty was relatively calm this morning. The EUR/PLN and the CHF/PLN were moving near their levels from yesterday. However, due to the global strengthening of the dollar, the USD/PLN went near the level of 4.10. The zloty should remain stable against the euro, especially that it’s quotations are not deflecting from the forint significantly. This goes to show that we are dealing with an impact of the external events.

This afternoon, we will see whether the signals from the currency market reflect in the Amerian treasury bond market. Currently, profitability of the American two-year bonds only increased by 1 base case point (1.21%). It seems that only the return to the range of 1.25-1.30% will be a sufficient signal to push the EUR/USD below 1.0500, as well as to raise the dollar above 4.10 PLN.