Daily analysis 25.03.2016

Macro economic data published in the forthcoming days may be an important element in the discussion regarding monetary tightening in the USA. The zloty returns to the levels from the beginning of the week after the losses from Thursday. The euro costs 4.26, and the franc is near the area of 3.90.

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.

Significant data on Monday

The situation on the worldwide floors stabilized slightly on Thursday afternoon. The recent depreciation was also worked-off on oil, due to the support of a better condition of the stock markets, and a decrease in drilling in the USA. Thus, calming down of the sentiments can transfer investors' attention on the future macro data, as well as the expectations regarding the American monetary tightening.

It is possible that we will receive the most significant reading as early as Monday. It will be concerning the PCE inflation from February. So far, we have already received an index of changes in prices from the past month. However, this was the CPI reading. The Federal Reserve uses the CPI reading for its projections for more than a decade.

The differences between the PCE and the CPI are visible, and they result from different weights for their particular components, and the frequency in which the given basket is updated. The CPI inflation is a result of consumers studies, and the PCE is a result of surveys conducted among entrepreneurs.

However, the most significant difference is the matter of expenses related to real estate as well as to health care. According to BEA (The U.S. Bureau of Economic Analysis), health care equals 20% of the PCE expenses, and only 6.1% of the CPI expenses. On the other hand, real estate costs are 42% of the CPI expenses, and only 23.2% of the PCE expenses.

For the past few quarters, the difference between the PCE and the CPI base inflation (with the exclusion of fuel and food), was approximately 0.5% to the disadvantage of the latter. According to February’s data, the CPI achieved slightly more than 2.3% (2.3313% before rounding off), which was its highest result since September 2008.

Thus, considering the above dependencies, the PCE base inflation may reach the level of approximately 1.8% y/y. This is the same value as the value of economists' consensus published by the Bloomberg agency. However, if it is exceeded, regardless of the permanence of this effect, this could be a good argument for enforcing the dollar, especially considering the recent statements from the Fed representatives.

We should also not forget that the payrolls will be published next Friday. This contains significant information regarding macro data. The Federal Reserve considers new workplaces in the non-agricultural sector as one of the basic indexes for the possible shape of the monetary policy. If the values (within the limit of 200k) are exceeded, this may also be an argument for discussing more than two hikes for this year in the USA.

In the end, it is also worth keeping in mind the ISM publication from the industrial sector. Since September, this accelerating index from the USA was below the level of 50 points. This suggested the shrinking of the industrial sector. Most of all, it was related to a stronger dollar which decreased the competitiveness of the American export and also to decreasing prices of raw materials, which caused less investments in the mining sector.

However, for two months this index experiences a rebound (49.5 points in February), and the reading that is most anticipated by economists, in March, is already above the level of 50 points. If these forecasts fulfill, we can interpret it as a positive factor for the USD.

In conclusion, if the tone of forthcoming publications is positive, and the situation in the raw materials market does not disturb the global sentiment, we can expect a visible appreciation of the American currency, and the EUR/USD will begin to go towards the area of 1.10.

Euro returns to the area of 4.26

After a 0.02-0.03 PLN depreciation of the zloty against the euro and the franc on Thursday, quotations of the Polish national currency are returning to the levels from the beginning of the week. Considering the fact that the majority of the worldwide markets are closed today, there is a minor chance for the external factors to create clear moves on the PLN.

Thus, in the base case scenario, the zloty remains within the current rage until the end of the day. More sudden moves can take place on Monday due to the American data. If the American inflation exceeds the expectations, it is possible that the dollar may come near the area of 3.84. On the other hand, the effect on the franc should be significantly smaller.