End of price cuts? (Afternoon analysis 26.06.2018)

26.06.2018 14:56|Bartosz Grejner

Today's session is to halt sudden drops in the market or losses of the zloty. However, potential duty issues may continue to put pressure on markets in the coming days.

Zloty may relax a bit

Although the significant drops observed yesterday on the markets were stopped, it is difficult to speak of a significant improvement in market sentiment. Yesterday's speech by Peter Navarro, an economic advisor to the White House, for CNBC calmed the markets down somewhat (he minimised speculation on investment restrictions), but he did not cause any euphoria on the market.

The issue of the customs conflict between the US and China with the EU is still relevant and, as long as it persists, a significant improvement in the markets is unlikely. Especially as the US President, using social media (even today) systematically reminds us of the possibility of introducing additional duties if the US trading partners do not end their own tariffs.

More uncertainty in the market could result in more risk aversion. As a result, capital may outflow from more risky assets to those perceived as safer (e.g. the yen, the zloty, the dollar at present). The zloty may also lose depreciate, as it is not helped by the internal situation (there is no prospect of interest rate rises). The zloty's quotations similar to the movements on the market were characterised by a limited range of volatility. The market is likely to await for further developments in the customs dispute.

Lack of introduction of additional duties may be beneficial for the zloty in the short term. In the long run, however, the divergence in monetary policy between the US and the eurozone and Poland will exert downward pressure on the Polish currency. There are no significant events planned for the following hours, so the zloty's quotation will be mostly determined by sentiment on the market.

The absence of deepening of yesterday's discount on the US market should rather support the zloty, whose relation to the euro was close to 4.35 yesterday and today, the highest level in 15 months. Since the morning, the euro price dropped by about 0.01 PLN and no significant changes in the quotations of the main currency pair (slightly below 1.17), i.e. EUR/USD, should support the stabilisation of the zloty around current levels.

Tomorrow's preview

At 2:30 p.m., the Census Bureau will publish data on orders for durable goods in the US in May. This data is of great importance as it may give indications as to future industrial production. According to the market consensus, the relatively more important core index (excluding orders for transport goods) is to increase by 0.5% per month, which would be the fourth consecutive month when orders increase. Positive data, slightly better than expected, could only support the argument of a wide divergence both in economic and monetary terms between the US and the eurozone and strengthen the dollar (and lower the level of the EUR/USD pair).

At the same time, the Bureau of Economic Analysis (BEA) will present May' level of the US foreign trade balance in goods. Over the past two months, this data has surprised positively and the deficit has turned out to be clearly below the expectations. The median of market expectations indicates a slight increase in May from 67.34 to 68.9 billion USD. However, if it had clearly failed the market, this could have triggered a reaction from the US President, given recent activity in this matter. The stricter rhetoric, which has already damaged market sentiment, could again translate into a worsening of sentiment, which may ultimately have a negative impact on the zloty's basket.


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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 the written permission from Cinkciarz.pl Sp. z o.o is prohibited.

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