Euro gets support (Afternoon analysis 21.01.2020)

21.01.2020 15:57|Bartosz Grejner

The data from the German economy increase hopes for a recovery in the eurozone economy, as well as for PMI readings on Friday. The market's belief in cutting rates in the Islands is falling - the pound gains against the dollar. Relatively good zloty with limited fluctuations - the EUR/PLN again below 4.24, but fluctuations may increase on Thursday and Friday.

Positive beginning of the year for the eurozone and its currency

In the afternoon, gradual strengthening of the euro was observed after the publication of optimistic data of the ZEW sentiment index. The EUR/USD quotations increased to around 1.1180. These data may be a clue to the PMI indexes for the eurozone, which will be announced on Friday. If their tone is similar to that of the ZEW index, the EUR/USD exchange rate may come back to 1.12 boundary.

This would also be a positive scenario for the zloty, which is still in good condition. A lack of dollar appreciation also supports it. The incoming good data from the eurozone may back the strengthening trend of the zloty. The EUR/PLN exchange rate fell below 4.24 this afternoon. In the context of recent days or weeks, the exchange rate has moved in a very limited range. It may broaden significantly on Thursday (ECB press conference) and Friday (PMI data). Holding back the strong growth of the franc in the global market also prevents the CHF/PLN pair from further price increases. Slightly better-than-expected PMI indexes could additionally support the zloty in relation to the Swiss currency.

Later in the day, the pound was also gradually appreciating - the GBP/USD quotations increased slightly over 0.4%, to around 1.3080. This is the result of better-than-expected data from the British labour market published before midday. Interestingly, a moment after the start of trading on the New York Stock Exchange, the market estimated the probability of the Bank of England cutting interest rates at the next January's meeting at around 60% (based on swap indexes). This is about 13 percentage points less than at the end of last week, and this sentiment supports somewhat the pound today. The GBP/PLN exchange rate rose to nearly 5.00 today, but it has not exceeded this limit.

Better-than-expected data from the German economy (ZEW index), as well as the relatively strong zloty's in relation to the region's currencies, proved to be helpful. For the pound, as well as for the GBP/PLN quotations, Friday's publication of PMI indexes will be important this week. Much higher than consensus PMI readings of the British economy could support the pound (recent days have been characterised by relatively small fluctuations for the British currency), although good readings are not so certain - macro data from the UK in the last few weeks are at most mixed; hence the discussion on interest rate cuts has intensified.

Tomorrow's preview

At 10:00 a.m., the Polish Central Statistical Office (GUS) will publish data on industrial production and producer inflation (PPI) in Poland in December. After a decline in construction production in December, a little more attention may focus on industrial data. The median of market expectations indicates an increase of 6.4% year-on-year and a reading clearly below this level may weaken the zloty somewhat. However, it should be remembered that the Polish currency reacts most to external factors. As long as they remain close to consensus, Polish data have a limited 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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