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Surprising increase in German export (Daily analysis 9.12.2019)

9 Dec 2019 14:04|Bartosz Grejner

Exports in Germany increased by 1.2% in October unexpectedly, but mixed signals from Europe's largest economy suggest that early euphoria should be halted. The pound is the strongest in relation to the euro since 2.5 years, the GBP/PLN exchange rate rises to nearly 5.10 PLN, and the market is waiting for Boris Johnson's victory in Thursday's elections.

Dollar loses part of the increases

A calm start of a restless week. That is how trade can be described on Monday morning. This week there will be decisions and press conferences by the Federal Reserve and the European Central Bank, as well as elections in the United Kingdom; therefore, it seems that macroeconomic data can have a relatively limited impact on the broader market.

This morning positive data from the German economy were published. Destatis announced that in October exports grew by 1.2% monthly, although the median of market expectations indicated a decrease of 0.3%. Given unchanged imports, this resulted in a trade surplus of 21.5 billion EUR, i.e. 2.2 billion above the consensus level.

The growth in exports in Europe's largest economy, which was severely undermined by the US-China trade conflict, could be seen as a sign of a return to growth path if it were not for the weaker than expected industry data published last week. The impact of a single reading will be rather limited. However, if the US and China reach an agreement and revoke some or all of their tariffs, German industrial activity and exports are likely to recover relatively quickly.

Although the session was calm, the US currency was depreciating today. The dollar index (DXY), which measures its strength against six major currencies, fell by nearly 0.1% around midday as compared to Friday's closing. The EUR/USD quotations also moved away from the Friday lows by about 1.1040 to slightly above 1.1070. However, these are very limited changes, given the events and fluctuations that await market participants this week. On Monday, the calendar of macroeconomic events for the rest of the day is practically empty, and no significant changes in value are expected in the following hours.

On December 15th, the deadline set by the USA for concluding an agreement with China expires, after which further tariffs may be imposed. This week, therefore, we can expect reports from both sides of the conflict that could increase market volatility.

Main currencies way ahead of the zloty

The zloty was in a slightly weaker condition than when it was closing on Friday. The Polish currency was depreciating against almost all major currencies. Although it was caused by a slight "risk-off" on the market, the value of the yen and precious metals - gold and silver - increased. Today, the EUR/PLN exchange rate reached approx. 4.285, while the USD/PLN exchange rate remained at approx. 3.87. If we observe a return of the dollar appreciation (whether due to positive reports from the trading front or the slightly hawkish tone from the Federal Reserve on Wednesday), the EUR/PLN exchange rate may quickly return above 4.30 PLN and the USD/PLN exchange rate above 3.90 PLN.

A slightly different subject remains the pound. Today, the GBP/PLN quotes rose to nearly 5.10, reaching their highest level since April 2017. This is the result of the global appreciation of the British currency. The GBP/USD quotations are close to the psychological key level of 1.32, and the EUR/GBP fell to around 0.8400 today, the lowest level in two and a half years. The baseline scenario for the elections to the British Parliament on December 12th is the victory of the Conservative Party and the continuation of Boris Johnson's rule, which would probably result in the pound's appreciation, at least in the short term. According to the Yougov survey carried out on December 6th, Conservatives have a 10 percentage points lead over the Labour Party. However, the surveys may be affected by an error. This may result in a surprise in the final result, and the coalition governments of Jeremy Cobrin from the Labour Party cannot be ruled out, which, however, would most likely result in a pound's depreciation by few percent.

9 Dec 2019 14:04|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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