Daily analysis 24.04.2017

Intense moves in the currency market after the first round of the French presidential election. New positive reading of the German Ifo index. Will Donald Trump announce a plan regarding the tax changes in Wednesday? The zloty benefits from a clear increase in the risk appetite. The S&P didn’t change Poland’s rating. However, perspectives for the Polish economy are not optimistic.

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

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

Optimism in markets

The result of the first round of the French presidential election has caused the optimism in the global market to increase. The American S&P 500 forward agreements went approximately 1% above their historical maximum. Moreover, the European stock exchange indexes increased significantly and the gap between the profitability of the German and French ten-year bonds decreased by more than 20 baseline points.

We have also been observing serious changes in the currency market. The EUR/USD went near 1.0850 and the EUR/JPY increased approximately 3%. The latter indicates a significant increase in optimism, which has also been observed on the Mexican peso (1.5% gains against the dollar).

The above moves show that investors basically rule out the potential victory of Marine Le Pen in the second round. This attitude seems justified, since surveys appeared to be very accurate regarding the first round’s result. Moreover, according to surveys that were conducted yesterday by Ipsos and Harris, Macron can count on 24 and 28 percentage points of advantage, respectively. Therefore, the market has considered elections as resolved.

This morning’s positive reading of the Ifo index has also worked for the sentiment’s advantage. The German entrepreneurs sentiment reached its highest level in approximately six years. In addition, evaluation regarding the current market situation increased from 119.5 to 121.1 points.

Tax changes

The French presidential election may reduce anxieties over the eurozone’s condition in the long-term. Therefore, the EUR/USD may even try testing the 1.10 area, if the expectations regarding rate hikes in the USA are reduced.

However, two matters can stop the growth of the main currency pair. Last weekend, Donald Trump tweeted that, “Big tax reform and tax reduction will be announced next Wednesday.” Taking into consideration that the past few weeks have brought many announcements regarding changes in fiscal policy, the market might have become skeptical towards such news. Nevertheless, if it appears that President Donald Trump has managed to achieve agreement with the Republicans, this may stop evaluation of the dollar.

Another matter is the ECB’s press conference on Thursday. Over the past few weeks, the European monetary authorities have been easing expectations regarding a sooner withdrawal from the extremely mild monetary policy. If Mario Draghi clearly rejects the possibility of rate hikes before the QE program is completed, the upward trend on the euro would be ceased.

Optimism on zloty

A strong optimism has also been visible on the zloty. Despite the euro’s global growth, the EUR/PLN decreased by more than 0.5%. Declines on the franc, pound and dollar are even larger (approximately 0.08 – 0.10 PLN). The zloty has also been gaining against the Hungarian forint. The PLN is currently the strongest among 31 currencies of developed and emerging markets.

On Friday, the S&P published a review of Poland’s rating. Both, the rating and the loan credibility were left unchanged. Nevertheless, the agency pointed out plenty elements that can be negative for Poland’s economy in the future (lower retirement age, demography, expansive fiscal policy). However, due to large chances for a significant GDP growth in the forthcoming quarters, as well as to the global optimism, these matters shouldn’t harm the zloty.