Daily analysis 28.12.2016

Good data from the United States have not resulted in a direct increase of the dollar, but today the EUR/USD is slightly below the 1.0450. The zloty, despite the relatively calm global trading, remains weak. The euro and the dollar are above the 4.40 and 4.20 respectively.

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

• Lack of the macro data which could significantly affect analyzed currency pairs.

Good data from the US, but a direct impact is invisible

According to yesterday's Conference Board report, the index of consumer sentiment rose to 113.7 points which has been the best reading in 15 years. As a result, together with the University of Michigan index, US households have been the most optimistic for over a decade.

Regarding the Conference Board reading, it is also worth noting that Americans are expecting further improvement of their situation. The expectation’ subindex increased by almost 20 points (12-year highs) in the past two months while the present situation remains at elevated levels.

More than 20% of Americans expect that in the next 6 months, the labour market will improve and their income will increase further. It's about 5 percentage points more than in November. The share of surveyed who are planning to change the car also increased from 12.8% to 14.3%. All these data may suggest that in the months to come, there will be more willingness to consume, which should also stimulate investments.

The data should also be seen in the context of fiscal changes signalled by Trump’s administration. If the Republican Congress seeks to lower taxes and increase the infrastructure spending, the current economic situation is expected to be further stimulated by an expansionary fiscal policy.

It seems that in such situation, the Federal Reserve will be more and more comfortable with three interest rate increases this year and it is possible that there will be speculation about tightening of the monetary conditions by 25 points/quarter from the second half of 2017. If such a scenario began to play, then this would be an ideal time to generate the next wave of the strong dollar, which could bring the major currency pair to the range of 0.95-1.00.

Returning to today's market declines of EUR/USD to 1.0430 area, at the moment, they should be perceived rather as a short-term disturbance near the recently observed range trend. For the materialisation of the scenario presented in the preceding paragraphs, decisions concerning the fiscal stimulation increase are essential. However, these decisions, will not be made in the coming days.

A lost opportunity

Yesterday, the EUR/PLN missed an opportunity to drop below 4.40 once again. Despite the relatively good global conditions and a lack of pressure from the dollar’s rise, the zloty remained weak. The forint was slightly stronger, for example. As a result, the PLN/HUF pair dropped briefly below the level of 70, close to over 3-year lows.

Today, on the other hand, the external environment is slightly worse and the dollar has been gaining in value to the most of developing countries currencies. This also translates into a weakening of the zloty, not only to the dollar but also to the European currency. As a result, the EUR/PLN level exceeded 4.41 in the morning. The PLN trading over the recent hours is a disturbing signal, because it increases the odds of zloty further depreciating, especially that January will be full of events which will raise the overall volatility of trading (e.g. scheduled Moody's and Fitch decisions on Polish rating review).