Yen and dollar's volatility (Afternoon analysis 27.12.2018)

Pronounced changes on the equity and commodity market (oil) with limited impact on the currency market. They mainly affect the yen and, to a lesser extent, the dollar. The zloty is relatively stable, although it loses a bit to the globally stronger euro.

EUR/PLN close to 4.30

The huge turmoil on the equity or oil market translated into today's quotations. After yesterday's 5% increases in the main indexes on the US market (Nasdaq even close to 6%), their European counterparts lost even 2%. When it seemed that it could not be any worse, the index of the 30 largest German companies on the market (DAX) fell below 10400 points, setting the new lowest level since 9 November 2016. European markets were followed by contracts on the US indexes, which lost about 1.5% half an hour before the beginning of the New York session.

The effect of these volatile day-to-day movements on the equity market has still limited impact on the currency market. The most affected is the yen, which as one of the "safe havens" loses out when market indexes rise and gains as they fall. Recently, we noticed a correlation between the dollar and the behaviour of the equity market: yesterday the dollar was gaining, today, when the market incurred some falls, it loses again. In this case, however, these changes are limited. The EUR/USD quotations, move within a limited range of about 1.135 - 1.141, the same as on previous days.

The worse sentiment on the equity market today and the global strengthening of the euro resulted in a slight depreciation of the zloty in relation to the single currency. These were not large losses, but today the EUR/PLN exchange rate rose to about 4.297, to its highest level since December 14th, when the last time the exchange rate crossed the 4.30 limit. However, if we look at the zloty basket, the zloty quotations in relation to the main currencies change only slightly. The probability that by the end of the year the zloty's valuation would change significantly is limited. As for the coming hours and end of trading this year, recent days show that afternoon quotes - when investors in the US are more active - provide significant volatility, which changes the market situation to a large extent. So far, the impact on the currency market should not be large, except for the mentioned yen and, to a lesser extent, the dollar.

Tomorrow's preview

At 9:00 a.m., the Spanish Statistics Office will present preliminary data on consumer inflation (CPI) in Spain in December. The median of expectations indicates that the CPI will fall to 1.5% year-on-year ( -0.1% month-on-month). Five hours later, analogous data for Europe's largest economy will be published. Consumer inflation in Germany is expected to reach 1.9% year-on-year and 0.3% month-on-month, according to the market consensus. These publications may imply what reading can be expected from the eurozone's aggregate index. Better than expected data from these countries, especially Germany, could indicate slightly higher inflation in the eurozone and support the euro. However, no significant changes in the euro's valuation at the end of the year should be expected.