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Sentiment deteriorates (Afternoon analysis 25.02.2020)

25 Feb 2020 17:17|Bartosz Grejner

Pressure on the US Treasury bonds weakens the dollar. The dominance of risk aversion may increase the supply pressure on the zloty in the following days.

EUR/USD stays above 1.08 boundary

Tuesday began in a slightly better sentiment on the market, but as the day went by, it was getting worse. One hour after the start of the session, the New York Stock Exchange again recorded a flow of capital to the US Treasury bonds, which contributed to strong declines in their profitability. The yields of bonds maturing in two years fell to around 1.2043%, the lowest level since April 2017.

Significant reductions also apply to the yields of 10-year bonds, which, falling this afternoon to about 1.3271%, have reached the lowest level in history: 1.3180% in July 2016. A fall below this level could trigger a further sale of equities and worsen sentiment in the broader market, which was already dominated by a strong risk aversion this afternoon.

Strong drops in the US Treasury bond yields exerted supply pressure on the dollar, even though it is considered to be a safe haven. The EUR/USD quotations moved away from the 1.08 level and reached about 1.0865 in the afternoon, returning to the pre-summer level. This weakness of the US currency, in turn, contributed to the deviation of the USD/PLN exchange rate from the recent highs (approx. 3,983). One hour after the start of trading in New York, the exchange rate oscillated around 3.96. However, the zloty basket remains weaker, and this is likely to continue in the coming days. The globally weaker dollar protects the zloty from greater correction, but when the pressure on the US currency reverses, with risk aversion dominating, the supply pressure on the zloty may increase.

Tomorrow's preview

The calendar of important macroeconomic events planned for tomorrow is limited. However, on Thursday the GDP reading for the USA will be published as well as PCE inflation in the USA on Friday and PMI readings in China on Saturday.

Tomorrow, on the other hand, the dollar's volatility may increase slightly due to data from the US real estate market. Recent information from this market has exceeded expectations, which are supported by low interest rate policies. The median of market expectations indicates an increase in sales of new homes by 3.2% on a monthly basis (717k). Slightly higher than expectations sales may support the dollar, although these are rather secondary data in terms of impact on the US currency and potential changes are therefore limited.

25 Feb 2020 17:17|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.

See also:

25 Feb 2020 14:02

Stabilisation, but the sentiment will change quickly (Daily analysis 25.02.2020)

24 Feb 2020 13:01

Strong growth in risk aversion, the zloty loses (daily analysis 24.02.2020)

21 Feb 2020 14:47

Positive PMI data from the eurozone (Daily analysis 21.02.2020)

20 Feb 2020 17:48

Beginning of the year belongs to the dollar and US economy (Afternoon analysis 20.02.2020)

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