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Iran in the limelight (Daily analysis 08.05.2018)

8 May 2018 12:08|Marcin Lipka

The EUR/USD pair set the new lows of this year. Has Powell's neutral speech had an impact on the currency market? Perhaps the chances are growing for an agreement with Iran to be maintained. Strong dollar puts pressure on the Polish currency. The EUR/PLN close to 4.26-4.27, the dollar moves towards 3.60 PLN.

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

  • 8.00 p.m.: President Trump's announcement of the US's further role in the nuclear agreement with Iran.

Dollar appreciates even more

Tuesday's quotations started with slightly better than expected readings from the German economy. Industrial production increased to 3.2% year-on-year in March, with expectations at 3.0%. The foreign trade balance of Germany was also solid. In March, the surplus amounted to 25.2 billion EUR, the third highest ever.

However, apart from positives, it is worth noting that the high surplus resulted mainly from a drop in imports (for the second consecutive month after the seasonal adjustment) and not from a rapid increase in exports. This may suggest that the German economy has slowed down, however, as the last few weeks have shown.

At 9.00 a.m., Jerome Powell's speech was published. The Head of the Federal Reserve took part in a conference organized by SNB in Zurich. It was not a breakthrough, but it was intended to show the market that the inflow of capital to emerging markets is primarily dependent on the difference in economic growth rates between emerging and developed countries, rather than on the Fed's monetary policy.

It seems that the market could have misunderstood this statement. While the Fed is confident about the small global impact of the monetary tightening in the US, the US monetary authorities will not hesitate to accelerate the rate of increase if necessary. As a result, the EUR/USD pair fell to its lowest levels this year (below 1.1880), and historical weakness records against the dollar were reached by the Turkish lira. The zloty depreciated during the conference in Zurich. It is seen that the sentiment towards the USD remains positive.

Market waits for Trump's announcement

Yesterday morning, it seemed that it would be most likely that the US would withdraw completely from the nuclear agreement and impose sanctions on Iran. However, on Monday, Donald Trump announced on Twitter that he would present his decision today at 8.00 p.m. CET.

The Twitter message was not particularly emotional as it had been in the case of Iran (e.g. the worst contract ever). In addition, in the evening Bloomberg news agency quoted the Israeli media, according to which British, French and German diplomats are close to an agreement with the US negotiators to come up with a solution to persuade President Trump not to withdraw from the nuclear agreement.

As a result, it cannot be excluded that the lenient sanctions may be imposed during today's speech and a more comprehensive solution to maintain Iranian oil exports may be developed in the coming months. This would be a negative sign for oil prices, which could fall sharply. However, this would have a positive impact on global sentiment and probably on the Polish currency.

On the other hand, if the US decides to withdraw completely from the agreement and suggests that the negotiations are deadlocked, then probably another wave of oil price increases will be seen, not only because of the hypothetical reduction in Iranian exports but also because of the increase in geopolitical tensions in the Gulf region. This could cause a worsening of the global sentiment, an outflow of capital from emerging markets and a further strengthening of the dollar. It would also be disadvantageous for the zloty.

Zloty under pressure

The Polish currency remains weak during the morning trade. The EUR/PLN pair is close to 4.26-4.27. This does not present a panic sale of the zloty, but the growing dollar prices cause natural pressure on the zloty. For the Polish currency, the report on the Iranian agreement will be also crucial.

If most of the sanctions against Iran were to be reinstated and the prospects for further talks remained uncertain, then we can expect the global sentiment to deteriorate and the zloty to be sold off. In the case of the indirect solution (details in the previous paragraphs), which chances to occur have increased slightly since yesterday evening, the zloty may benefit somewhat from the general wave of better global sentiment.

8 May 2018 12:08|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:

7 May 2018 12:28

Stronger dollar (Daily analysis 07.05.2018)

4 May 2018 15:21

Zloty closer to being stable (Afternoon video analysis 04.05.2018)

4 May 2018 12:12

Another day with weak data (Daily analysis 04.05.2018)

30 Apr 2018 12:16

The market doesn't rest (Daily analysis 30.04.2018)

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