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Daily analysis 28.07.2017

28 Jul 2017 12:29|Marcin Lipka

The franc continues substantial sell-offs. The Swiss currency, in relation to the euro, has lost 3 percent in value since the beginning of the week. Better than expected data from the eurozone. The zloty has remained relatively weak against the euro or the forint. The CHF/PLN pair is below 3.75.

Macro key data (CET time- Central-European). Estimates of macro data are based on Bloomberg information unless marked otherwise.

  • 2.30 p.m.: Preliminary data on Q2 GPD data from the USA (estimates: 2.7% QOQ annualized; last update of the Federal Reserve's GDP from Atlanta shows 2.8% QOQ.

Major sell-off the franc

Yesterday afternoon, the EUR/CHF pair was quoted below 1.12. Today, for one euro you must pay almost 1.14 francs. Within 24 hours, the value of the Swiss currency in relation to the euro has decreased by less than two percent. It is also worth noting that there was no news from Switzerland in the context of the monetary policy or monetary intervention of the SNB. Therefore, the movement was initiated by market forces, which could even mean a change in attitude toward the franc in the following months.

One strong characteristic of the Swiss currency are the sudden, strong movements despite a lack of macro economic data. This may mean that during such periods, the demand for the CHF could be significantly lower and the institutions that counted on the appreciation of the franc are being forced by the market to close their positions, which only exacerbates the sell-off of the Helvetic currency.

In addition, the market may also be afraid that the SNB will seek to use the current situation to further weaken the CHF and through subsequent announcements (about no changes in the monetary policy and interventions if necessary) may, in a nearly natural way, bring the EUR/CHF pair to the area 1.20. Although there has been a small chance to make these changes as quickly as in the latest hours, the weakness of the franc should accompany us for a long time.

Good eurozone data before US readings

In the morning, there were relatively good figures from the French economy for the second quarter. The GDP has grown by 1.8% YOY with a consensus of 1.6% YOY. This was additionally the best reading for around 6 years. The components of the GDP have also been relatively positive - from consumption, investment and foreign trade came positive contribution, and negative from stock losses.

Data from Spain was also a bit above the market expectations. The GDP increased by 3.1% year-on-year and the consensus at 3.0% YOY. In the afternoon, however, the market's focus will be on publications from the United States.

Yesterday, the consensus among economists on GDP for the second quarter was at 2.5% (analysed scenario). Today, it has risen to 2.7%, and the Federal Reserve's GDPN model raised the estimates from 2.5% to 2.8% QOQ. However, it is worth remembering that the initial data has often deviated from the final readings.

In addition, the specificity of the readings - a publication of seasoned QOQ data and multiplied by four (annualization) - has posed a significant risk of a deviation from estimates. Today, data revision for 2014-2016 will be announced, so the market may take more time than usual to assess today's readings, which is additionally interesting. Also, the reaction to currencies may be relatively chaotic and even inconsistent with the data for the current quarter.

The zloty has remained weak

The low quotations of the franc or the dollar on the global market may slightly distort the assessment of the zloty's condition. In general, however, the Polish currency has remained weak. The EUR/PLN has been in the range of 4.25-4.26 from the morning, and the PLN/HUF pair has tested again around 71.5 in the afternoon, which is a 4-month low.

The afternoon should not bring a clearer change on EUR/PLN. As for the impact of US readings, the biggest impact should be on the USD/PLN pair. Given the considerable level of uncertainty about readings (preliminary data, previous quarterly revisions), it is difficult to determine the final direction of the dollar, even when taking the recent increases in estimates by economists into account.

The depreciation of the franc in relation to the euro (around 3% from the beginning of the week) also caused clear pressure on the CHF/PLN. In the morning, quotations of this pair has already been below 3.75. The Swiss currency should continue to be relatively weak (details in previous paragraphs). Although, the rate of depreciation is likely to be significantly slower and separated by major corrections than we have observed in recent days.


28 Jul 2017 12:29|Marcin Lipka

This commentary is not a recommendation within the meaning of Regulation of the Minister of Finance of 19 October 2005. It has been prepared for information purposes only and should not serve as a basis for making any investment decisions. Neither the author nor the publisher can be held liable for investment decisions made on the basis of information contained in this commentary. Copying or duplicating this report without acknowledgement of the source is prohibited.

See also:

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27 Jul 2017 11:56

Daily analysis 27.07.2017

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Afternoon analysis 26.07.2017

26 Jul 2017 12:34

Daily analysis 26.07.2017

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