Daily analysis 27.12.2016

The dollar is stable, but in the afternoon readings from the US are expected. CFTC reports may suggest that the USD appreciation trend can slow down. The zloty is stable, but still remains weak. The EUR/PLN is not able to fall below the 4.40 level.

The most important macro data (Central European CET time). Estimates of macroeconomic data are based on information from Bloomberg, unless stated otherwise.

• 15.00 The change in real estate prices in the USA according to S&P CoreLogic CS (estimates: + 5.0%)r/r
• 16.00 Consumer confidence rate by the Conference Board (estimates: 108.5 points)

More volatility can be observed in the afternoon.

The currency market is very calm during the post holiday trade. The EUR/USD is still around 1.0450, USD/JPY is slightly above the 117.00, the dollar index, since three days, is close to the level of 103 points. We can expect some more volatility in the afternoon, especially after the Conference Board consumer confidence index hits the wire.

On Friday we had another index which measures the confidence sentiment. It was conducted by the University of Michigan. A slight upward revision from the preliminary data pushed it to 11-year highs.

Both indicators measure consumer expectations but the data from Conference Board seems to lead the other index regarding the broad optimism. It also reacted fairly calm to the most recent political turmoil before the election. Today’s reading may give a signal whether the consumer sentiment still has some room to improve or the current value is difficult to exceed.

Bloomberg consensus assumes a rise in the Conference Board by 1.4 points, to 108.5 points. This would be the highest reading since mid-2007. However, for the data to have clearer impact on the market, one of the following scenarios would probably have to play.

Exceeding the level of 112 points (highest since 2001), would be positive for the dollar. Such a scenario can not be ruled out, because even during the relatively stable sentiment, changes around 4-5 points may occur. Recent new highs on the US indices and calmer political situation may lead to such move. This would also be a positive signal for the dollar, hence the move would not exceed 0.5%.

On the other hand, not the value below today’s consensus, but the reading below November’s data would probably be received as a deterioration signal. This would mean that both new highs on stocks and less uncertainty after the election failed to push the sentiment higher.

CFTC Reports

Every Friday, the CFTC publishes data on speculators’ involvement in the currency market futures contracts. The data is not a perfect predictor of the situation, especially since the publication is somewhat delayed, because it reflects the situation at the end of Tuesday's session. In addition, the relatively small value of the trade is carried out on a regulated market.

Since the beginning of December, however, the balance of short positions (anticipates the fall of the instrument) on the EUR/USD dropped from 120k contracts (approx. $15 billion) to 78k contracts. Last week also brought the lesser involvement of speculators who expect the dollar growth in relation to the pound, Swiss franc or Canadian dollar. This may suggest that the part of the market has been executing recent gains. It can also be a signal that the dollar will have some difficulties to gain more ground, especially if the data fails to exceed the consensus.

Still around 4.40

The holiday trade on the zloty market was quite calm, however, despite the relatively favorable situation (better data from Poland, the lack of the depreciation of developing countries currencies) the EUR/PLN is unable to fall below the limit of 4.40. It is also worth noting that the domestic currency has been trading at low levels against the forint. The PLN/HUF pair is still close to the 70 level which is only about two percent above 3-year lows.

However, we are still expecting that with no gains on the US bond yields the EUR/PLN should finish the year slightly below the 4.40 level. Also, the Swiss franc may depreciate below 4.10 PLN level in the following days.