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Sentiment improves (Afternoon analysis 12.10.2018)

12 Oct 2018 16:51|Bartosz Grejner

The dollar pares some of the losses after its weakening, which coincided with the sale on the stock market. The zloty is in good shape, and a potential increase in the rating in the evening may strengthen it further.

EUR/USD returns to 1.15?

After another deep depreciation yesterday on the global share market, today a rebound in some of the declines and an improvement in sentiment were observed. At the same time, the dollar was appreciating, which weakened slightly in the last two days, also due to lower than expected inflation in the USA. The EUR/USD quotations gradually fell from just over 1.16 in the morning to about 1.154 just before 4:00 p.m.

However, taking into account the latest developments on the global market, the changes in the currency market seem to be cosmetic. Over the last 10 trading days, the EUR/USD pair moved in a relatively narrow range of about 1.143-1.163.

At 4:00 p.m., the University of Michigan published preliminary data on the US consumer sentiment index in October, which turned out to be below both the market consensus and September level, although the data was still near 14-year highs. It is unlikely that the market will be too interested in this publication, given the fact that the surveys were conducted before the collapse of the stock market.

The zloty is supported by the relative calm situation on the global currency market. The EUR/PLN exchange rate fell below 4.30 to its lowest level in 8 days and the CHF/PLN to its lowest level since the end of August. The fact that S&P Global Ratings is raising its rating, can help the zloty. Although it would only mean a return to the level from before its unexpected reduction in January 2016, it could support the zloty a little, especially if it coincided with the good readings from Poland that will be published in the first part of next week. However, very significant fluctuations should not be expected, if we do not observe strong changes, including in the case of the valuation of the euro against the dollar.

Next week's preview

Minutes from the last meeting of the Federal Reserve (Fed), at which interest rates were raised once again, may be the most important publication of next week. Minutes usually attract special attention from investors, as they are able to assess in more detail the path that the Federal Reserve may follow in the future. Now, however, the Federal Reserve and interest rates draw even more attention because of the pressure from President Donald Trump, who almost every day declares that the Fed is acting too aggressively. Around the announcement of the minutes on Wednesday evening, we can expect increased fluctuations in the dollar and thus additionally in the majority of the main currencies.

A set of important macroeconomic data for the zloty will be published next week, although the Polish currency responds more to external factors rather than internal ones. On Monday, the current account data for August will be available. On Tuesday, however, data from the labour market on changes in average wages and employment. Moreover, September's data on core inflation will be published that day. A day later, industrial production in September will also be shown. Fluctuations in the zloty may increase slightly, especially if the inflation and industrial production data deviate significantly from the consensus, but the events on the international market will affect the quotations of the Polish currency.

12 Oct 2018 16:51|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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