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Dollar reigns the market (Daily analysis 13.11.2018)

13 Nov 2018 12:30|Marcin Lipka

A number of impulses at the beginning of the week pushed the dollar to the highest levels since mid-2017. Italy's 10-year Treasury bond yields reached 3.50% before the deadline for submitting the modified budget to the EC. The zloty in relation to the euro remains stable. The global strength of the dollar pushed the USD/PLN quotations to the 3.83 PLN.

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

  • A lack of macro data may noticeably impact the analyzed currency pairs.

Series of negative events

Monday quotations on the broader market were very interesting. In the morning, the euro depreciated and the dollar increased due to fears of a harder Brexit (negative for the euro and pound) and a rebound on the oil market (at the Abu Dhabi conference there was speculation about reducing oil production even by 1 million b/d - about 1% of the world's supply).

In the following hours, however, the market was driven by the market quotations in the USA. Strong drops in riskier assets brought crude oil back below opening levels (11 consecutive downturn sessions - a historical record). Lower oil prices did not contribute to the fall in the dollar and the rise in emerging market currencies, as they were the result of concerns about the condition of the world economy and demand issues. Therefore, it can be said that the decline was caused by negative, not positive factors (e.g. supply growth).

As a result, all factors of yesterday's session (first the increase in oil prices and then its drop, Brexit, the situation on the US markets) were positive for the dollar. This brought the main currency pair to its lowest levels by mid-2017, i.e. around 1.1220.

The situation could have improved during the Asian quotations due to information on the meeting of the Chinese Deputy Prime Minister in Washington. This is a positive sign in connection with the G20 summit scheduled for the end of November when the positions of the USA and the Middle Kingdom on foreign trade could be brought closer together. However, this information did not help the euro (the trade agreement will assist the European and Chinese currencies more, and is likely to harm the US currency), as the focus on Tuesday's session in Europe has once again shifted to Italy and its budgetary conflict with the EC.

In the morning, some media reported that the administration of Prime Minister Conte is willing to modify the assumptions (those concerning GDP growth) and adjust them to the estimates of the European Commission. Before midday, however, Finance Minister Giovanni Tria (quoted by Bloomberg) stated that economic growth "cannot be negotiated". By midnight Rome has to send a modified fiscal plan to the EC. If it fails to do so, we will probably see further increases in Treasury bond yields (today's 10-year instruments have exceeded the 3.50 level), which may contribute to the next wave of decline in the main currency pair.

No worries for the zloty

Although the dollar has been testing the highest levels for less than a year and a half (around 3.83) in recent hours, there is no particular panic regarding the Polish currency (the EUR/PLN pair is relatively stable). A similar situation is also observed on the Czech koruna and the forint. The resistance of our region's currencies to a series of negative external factors is clearly visible, which overall is positive information.

If there are no dramatic events, this trend seems to continue. Therefore, there is a relatively limited risk that EUR/PLN clearly crosses the 4.30 boundary, even if the main currency pair falls below the 1.1200 limit.

13 Nov 2018 12:30|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:

9 Nov 2018 16:18

Zloty may weaken (Afternoon analysis 9.11.2018)

9 Nov 2018 13:01

Dollar keeps its profits (Daily analysis 9.11.2018)

8 Nov 2018 15:31

Zloty still good condition (Afternoon analysis 8.11.2018)

8 Nov 2018 13:30

European Commission’s new forecasts (Daily analysis 8.11.2018)

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