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Stronger dollar (Daily analysis 07.05.2018)

7 May 2018 12:28|Marcin Lipka

Another piece of weak data for the euro - a negative surprise in German data and a growing risk of forming a populist coalition in Italy. The zloty close to the 4.25 per one euro.

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

  • A lack of macro data may noticeably impact the analyzed currency pairs.

Euroland again fails to meet expectations

Almost every reading from the eurozone in recent weeks is below the market expectations. This dependency has been confirmed by today's order data for German industry in March. They increased only by 3.1% year-on-year, i.e. practically the same as in February. Economists expected an acceleration of up to 5.0% year-on-year. Additionally, on a monthly basis, it is the third consecutive decrease in orders (seasonally adjusted), and this was mainly caused by the reduction in foreign demand.

The PMI index for the retail sector was also surprisingly low. Although this index is not analysed extensively by the capital market, according to IHS Markit data, it amounted to 48.6 points in April, i.e. it was the lowest in 17 months. In the case of Italy, the decrease was even deeper (42.7 points), which is the lowest reading in 21 months.

Negative political news is also flowing from Italy. Only a few months ago, the coalition of the Five Star Movement and the right-wing Northern League seemed to be practically impossible. Now, however, there is a growing probability that both populist parties will form a government.

Luigi Di Maio, leader of the Five Star Movement, said that he would not have to be the PM of a new coalition if a Eurosceptic government had been formed. From an economic point of view, this is a bad thing. Both groups wanted to withdraw from the recent pension reforms. So far, there has been no clear reaction on Italian bonds, but in the case of downturn economic trend, Italy will be the weakest link in the eurozone.

Around midday, the EUR/USD pair was close to 1.1925 (this year's lows), but this time that was the result of a weaker euro rather than a much stronger dollar. It seems that the main currency pair can still remain under pressure from sellers if Thursday's inflation data from the US is not below in red.

Stable zloty, but risks remain

The zloty maintained most of Friday's increases and the EUR/PLN exchange rate is around 4.25 boundary. Probably this rate is close to balance, taking into account both external factors (aversion to emerging markets; the slowdown of growth in the eurozone) and internal factors, i.e., the MPC's reluctance to raise interest rates.

It is worth noting, that the situation in the emerging countries currencies may continue to deteriorate. According to April's IIF data quoted in the Financial Times, the last month was the first in a year and a half since the outflow of capital from emerging markets was noticed. If this trend continues, then it will be difficult for the zloty to remain stable. Combined it with the strengthening dollar, the risk of the US currency exceeding the 3.60 PLN is growing and may happen even this week.


7 May 2018 12:28|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:

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)

27 Apr 2018 15:45

Positive data from the US (Afternoon analysis 27.04.2018)

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