January was a really interesting month. 5-year highs on U.S equities, incredible strength of euro, weakness of yen and PLN under pressure. However, almost all the moves on currencies were provoked by Central Banks.
The beginning of the month and FED impact. PLN was stable despite weak data.
First days of the new year began with EUR/USD slide. Firstly the fake breakout above 1.3300 and secondly relative hawkish “Minutes” from FED pushed the common currency lower toward 1.3000 mark. We spent a few days in the range trend until the Mario Draghi conference on January 10th. The ECB President after the rate decision (no change) repeated many times that there was no discussion regarding the interest rate cut. It spurred a real surge on EUR/USD (200 pips in one day) and allowed the common currency to return to levels from the beginning of the year. In the background of EUR/USD action we had a significant depreciation of yen after Prime Minister Abe and other freshly appointed Japanese government members commented the overvalued currency. It is worth to mention that despite the EUR/USD weakness in the first decade of the month EUR/JPY pair was fairly stable (due to JPY weakness to dollar). In contrary to the global markets EUR/PLN was pretty stable in the first 10 days of the month and was traded in the range of 4.07-4.12 event though some weak data were coming to the market (disappointed debt auction and indications of slow GDP growth).
Range trend on EUR/USD in the 2nd decade. PLN was weaker after the industrial production data.
After Mario Draghi's statement EUR/USD was moving in the range trade (1.33-1.34) without any indications of a correction. The common currency was supported a bit by macro data (from China) and constant weakness on JPY (mainly through EUR/JPY pair). We could also observed some hesitation after Eurogroup chief Jean-Claude Juncker statement who suggested that euro is too strong. The market however, accepted the later correction and EUR/USD moved again above 1.3300 level. Much more action was on EUR/PLN where weaker-then-expected data from industrial production pushed EUR/PLN from 4.1000 to 4.1700. It was a critical moment for the Polish currency. It has ended the long lasting range trend.
Robust data from Germany, new highs on EUR/USD, and FED at the end. PLN was weak.
The end of the month was clearly the euro rally. The common currency was supported by good German data: ZEW index, PMI, and Ifo. Thanks to positive surprise from Germany EUR/USD moved firmly to 1.34-1.35 range. However, the move before the FED statement this week provoked the surge toward 14-month highs at 1.3587. We cannot also forget about the EUR/JPY which jumped almost 1000 pips in one month! Despite a successful debt auction in 3rd decade of the month PLN was not able to gain any ground. Another weak data from the economy (mainly retail sales) pushed EUR/PLN toward 4.2000 (0.10 PLN higher then at the beginning of the year).
A view on the next month.
In my opinion the next month will be free of Central Banks influence. The only threat I would see from ECB is that a member can mention about too strong euro what can refresh the discussion regarding interest rate cut and push EUR/USD lower. Investors will be mainly focused on macro data. As early as tomorrow we get the ISM and NFP from the States. For the zloty PMI report can spur some move on Friday. The next days will be dominated by Polish MPC meeting (25 bps rate cut is expected), and decision regarding ECB rate (no change is expected). In mid February we will see the GDP report from Eurozone and CPI from Poland (important regarding the monetary policy). In the next month there is no FED meeting but in the middle of February we get “Minutes” from the January decision. Regarding the EUR/USD rate for the next month I would not expect the shared currency will exceed 1.3800 or falls below 1.3300. On the other hand the Polish zloty will be rather weaker and move toward 4.2500.