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Zloty in better shape (Afternoon analysis 21.11.2018)

21 Nov 2018 16:18|Bartosz Grejner

The inflow of positive data on the Polish economy strengthens the zloty. The improvement in sentiment on the equity market slightly weakens the dollar and chances for its significant appreciation are very limited. The fall in orders for durable goods in the USA declined the most in October for over a year.

EUR/PLN again around 4.30

The zloty's condition for the second day in a row is clearly improving. All of this has happened due to a series of positive publications from the Polish economy. In addition, the latest OECD forecast of the economic growth pace in Poland this year and next year has a positive impact (it will grow by 5.2% and 4.0%, respectively).

The main Asian and European market indexes pared some of the losses incurred yesterday, which has improved the general sentiment in the market. The return of appetite for riskier asset caused the weakening of the franc, the yen or the dollar. These factors, apart from positive information concerning the Polish economy itself, most often have a positive impact on the zloty.

On the other hand, the US economy's data failed. According to the Census Bureau, orders for durable goods in the industry decreased by 4.4% per month in October, although they were expected to decrease by 2.2%. At the same time, this was the biggest decrease in 15 months. Excluding highly volatile transport orders, the core index calculated in this way increased by 0.1%, 0.3 percentage points below expectations. The next big disappointment in this report was the revision of September data. Instead of an increase of 0.7% m/m in the case of the headline reading, there was a decrease of 0.1%, and instead of an increase of 0.1% in the case of the core index, there was also a decrease of 0.6% in orders.

While the main factors that determine the dollar or the main currency pair's quotations are expectations regarding the monetary policy of the Federal Reserve or the situation in the eurozone, today's publication may worsen the dollar's situation. Especially if the rebound on the European exchange markets will also affect the ones in the USA. Shortly after 3:00 p.m., the EUR/USD quotations were just above 1.14. Such a development of events would allow the zloty to maintain its profits in relation to its main currencies. The EUR/PLN and the USD/PLN quotations should oscillate around current levels, i.e. 4.30 and 3.77, respectively, as well as other basic currencies in relation to the zloty.

Tomorrow's preview

At 10:00 a.m., The Polish Central Statistical Office (GUS) will publish data on October retail sales. The median of market expectations indicates its real growth by 5.8% year-on-year (in current prices by 8.1%). The zloty has strengthened in recent days, due to better than expected data from the industrial sector and the pace of GDP growth. If retail sales data also surprises positively, the Polish currency may gain another supportive factor. Although much depends on external factors, the prospects for the zloty have slightly improved.

At 1:30 p.m., the European Central Bank (ECB) will provide a record of the talks of the last Governing Council meeting on monetary policy. Although we can expect an increase in the euro's volatility around the publication time, the final impact of the minutes should be limited. The ECB's position on monetary policy, in particular, interest rates, is currently cautious, which seems understandable given the problems related to Italy or the somewhat more rapid economic slowdown than expected.

21 Nov 2018 16:18|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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