Daily analysis 26.09.2017

26.09.2017 12:42|Marcin Lipka

Pressure on the EUR/USD persists. The main pair is close to the 1.18 boundary before Emmanuel Macron and Janet Yellen's speeches. Brent oil is at more than two-year highs due to increasing concerns about supply stability and a strong demand. Riding a wave of significant risk aversion, the zloty depreciated not only in relation to the dollar or the franc, but also to the euro.

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

  • 3.00 p.m.: Speech by French President Emmanuel Macron,
  • 4.00 p.m.: New home sales in the US (estimate: 585k),
  • 4.00 p.m.: The US consumer confidence index Conference Board (estimate: 120 points),
  • 6.45 p.m.: Speech by Federal Reserve President Janet Yellen.

Increased risk aversion

Over the last few hours, the situation on the foreign exchange market has become much more complicated. Limited increase in risk aversion caused by the elections in Germany has been noticeably magnified by reports regarding the Korean Peninsula. This resulted in a strong appreciation of the Swiss currency. Around 4 p.m., the EUR/CHF pair traded above the 1.1550 boundary. After two hours, the tested values were close to 1.14.

The yen and the dollar gained value. In recent months, the US currency appreciation has not been obvious at all in the context of an appetite fall for risk and information concerning North Korea. However, when the mood in the eurozone cooled due to weak CDU results and the need to form a coalition without the existing SPD partner, the European currency did not appreciate despite a decrease in the yields of the US Treasury bonds and falls in the US markets.

The traditional image of the deterioration of the market sentiment was also disturbed by strong increases in oil prices. Brent oil was appreciating virtually throughout the day due to fears that voting connected with Kurdish independence in Iraq could lead to the closure of a Turkish pipeline through which, according to the Wall Street Journal, approximately half of the 600k barrels of oil are produced there.

Oil prices have been rising in recent weeks due to strong demand growth in Q2 of this year and speculations regarding the prolonging of the output limitation by OPEC beyond March 2018. As a result of worse sentiment, oil gained value, which in turn, supported the ruble and the Canadian dollar.

Macron and Yellen

In the afternoon, Emmanuel Macron and Janet Yellen's speeches will draw the attention of the market. In an appearance by the French President, market participants will pay particular attention to his vision of deeper integration within the eurozone and the possibility for the expected coalition in German government to support this project. However, given the uncertainty surrounding investors since the beginning of the week, an increase in the EUR/USD valuation after this event would rather require some quick and positive reference to this vision, both on the CDU and FDP side. In the absence of such a statement from Berlin, the chances of the main currency pair's growth are likely to remain limited.

It is also difficult to expect that the EUR/USD pair was supported by Janet Yellen's speech today.Statement of the President of the Fed was relatively hawkish last week. In addition, FOMC macroeconomic projections suggest monetary tightening at the level of 1 percentage point until the end of 2018. Today's speech may be a good moment to uphold these expectations, not to withdraw from them. As a result, therefore, the dollar can probably also be supported by the monetary policy of the Federal Reserve today.

The zloty did not hold during internal pressure

By Monday's opening of the US market, the situation of the national currency remained good. The EUR/PLN pair was traded below the 4.27 boundary. The price decrease on the US stock exchange, combined with reports concerning the Korean Peninsula and a significant increase in the value of the Swiss franc, caused the EUR/PLN to begin to test the 4.2850 boundary and the CHF/PLN to rise by 5-6 gr to the limit of 3.74-3.75. It is worth noting, however, that the valuation of the zloty in relation to the forint remains stable, which means that current movements on the Polish currency are connected with global, but not local, events.

Just like yesterday, this afternoon may be important for the PLN. Macron's speech, the market openings in the US, and Yellen's speech can most likely prolong the increase in risk aversion and maintain pressure on the zloty, or perhaps reduce yesterday's losses.

 


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