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Only minor changes (Afternoon analysis 24.04.2018)

24 Apr 2018 15:43|Bartosz Grejner

The foreign exchange market is waiting for the ECB scheduled for Thursday. Limited changes of EUR/USD quotations also support the zloty stabilisation. However, the Polish currency has more to lose than to gain on Thursday. Rising oil prices may increase inflation in the US.

EUR/USD close to 3-months lows

The dollar's appreciation trend may have slowed down somewhat today, but it remains strong. The main currency pair, i.e. EUR/USD, fluctuates around 1.22. If we express its condition in the dollar index (DXY), it is just at its highest for more than three months. The stimulus that may give the impulse to resume the dollar's appreciation might be the fact that the yields on US Treasury bonds maturing in 10 years' time exceed the 3% threshold.

Currently (at 3.00 p.m.) their profitability is at the 2.964% level and by not exceeding the aforementioned limit it also helps the Polish currency. The zloty's prices in relation to main currencies were practically at yesterday's closing levels, just like the euro against the dollar. Probably only a significant movement on EUR/USD may cause a marked fluctuation in the zloty's trading.

However, for such an impulse we may wait until Thursday. On that day, the European Central Bank (ECB) will present its decision on the monetary policy for the eurozone. The recent slowdown in the eurozone's economy and the still subdued inflationary processes may prompt members of the ECB to postpone the exit from the ultra-mild monetary policy. This would be a strong signal for a drop in the EUR exchange rate and an increase in the USD, in which the whole zloty's basket would most probably depreciate.

Tomorrow's preview

The calendar of scheduled publications and events for tomorrow is limited. At 10.00 a.m., the Polish Central Statistical Office (GUS) will present data on the unemployment rate in the Polish economy in March. The median of market expectations suggests a decline from 6.8% to 6.6%, the level seen December. This publication should be neutral to the zloty, which is currently under pressure from both internal and external factors related to monetary policy.

At 4.30 p.m., the US Energy Information Administration (EIA) will publish a weekly report on the US fuel market. The market will probably focus on data on crude oil stocks and its products, as well as on production. The market consensus indicates a further decline in stocks, which in theory should support the high price levels. Recently, both the Brent and WTI have grown to their highest levels for 3.5 years.

The OPEC and several non-associated countries agreement has had the expected consequence - higher prices. There have been also statements from cartel officials about oil prices being at 80 USD and 100 USD level per barrel. Although the latter seems unrealistic at the moment, even record oil production in the US is not enough to hamper the upward trend of 'black gold'. The difference between WTI (USA) and Brent (international) is growing, but prices are rising steadily.

There are no threats present that could hamper the upward trend in oil prices, although it should be remembered that this is a very speculative and volatile market. However, if oil prices continue to rise, they could stimulate inflation, especially in the US, which could result in a stronger dollar (due to a higher probability of rate hikes).


24 Apr 2018 15:43|Bartosz Grejner

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.

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