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Weak sentiment persists (Daily analysis 27.06.2018)

27 Jun 2018 13:01|Marcin Lipka

Despite the White House's partial withdrawal of investment restrictions in the US, the sentiment a few days before the expected introduction of duties remains weak. Many emerging country currencies are under pressure also because of rising oil prices. The EUR/PLN rate is still close to the 4.34 border, i.e. highs of many months.

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.

More bad than positive pieces of info

Aversion to risk still prevails in a broad market. Above all, this shows the behaviour of emerging market currencies and the fact that, apart from the dollar, the yen and the franc remain strong. The situation has also not been improved by the issue of the White House administration taking a step backwards in its efforts to reduce investment in technologically sensitive sectors. The assessment as to whether such investments can be made by foreign entities will be based on current tools and not on new guidelines.

However, positive news is quickly replaced by negative news. The US constantly suggests that it is possible that tariffs will be imposed on European cars. In addition, next Friday, 25% of the customs duty on Chinese imports is to be applied, with a total annual value of 34 billion USD, and shortly afterwards for another 16 billion (about 10% of total imports from the Middle Kingdom).

If these actions are not stopped, a weak sentiment may persist, even if the option to withdraw from the trade restrictions (at some point) remains the core scenario. The market may start speculating about the fact that the threat of customs duties on the remaining parts of the trade (USD 450bn/year) is increasing significantly and that it will be more difficult to reverse these trends.

Often, if the threat to the global economic situation is growing, energy resources are becoming cheaper because of the expected drop in demand. However, the opposite situation is now happening. Oil is clearly more expensive and is approaching a long-term high (fears of stocks, supply from Iran, insufficient free capacity in OPEC due to Venezuela's problems). With an expensive dollar, it creates a significant cost for the countries importing this raw material, and thus increases the pressure on local currencies.

The Indian rupee is a good example here, as it is close to reaching the lowest level in history against the dollar. The new multi-month lows have been deepened by the yuan against the dollar again. The US currency cost almost 6.62 CNY today. This also worsens the general sentiment in the market, as a large part of investors are looking at the yuan's behaviour.

The key factor that creates the sentiment is still the market in the US and the evaluation of investors there on trade threats. As long as the sentiment remains minimal, it is difficult to expect a response to the recent currency depreciation, even if the chances of interest rate rises in the US are slightly lower.

Global sentiment and its influence on the zloty

In the current environment, the Polish currency behaves relatively well in comparison to emerging market currencies, but this is not enough to maintain its value in relation to the euro, the franc or the dollar. Therefore, the EUR/PLN pair is still very close to 15-month highs.

The zloty's situation, like that of the global market, will depend on foreign trade issues in the coming days (details in the previous paragraphs). If the situation does not stabilise and parties concerned do not take a step backwards, it is possible that in the following days the EUR/PLN pair will reach a new high, and the quotations will move towards the range of 4.35-4.40.

27 Jun 2018 13:01|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:

26 Jun 2018 14:56

End of price cuts? (Afternoon analysis 26.06.2018)

26 Jun 2018 12:55

Concentration of negative information (Daily analysis 26.06.2018)

25 Jun 2018 15:09

Dollar and zloty below in red (Afternoon analysis 25.06.2018)

25 Jun 2018 11:59

Turkish lira after elections (Daily analysis 25.06.2018)

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