Afternoon analysis 09.11.2015

, author:

Marcin Lipka

The EUR/USD rebounded from the lowest level since April. Investors wait for clues on the European Central Bank plans. The new government was quite positive for the zloty.

After very good data from the US labor market the probability of an interest rate hike in December moved above 70 percent (according to Bloomberg). As a result, the dollar gained against the euro and other major currencies. The EUR/USD dropped to the lowest level since April.

On Monday, the move from the previous week was somewhat reversed. The EUR/USD rebounded from the lowest level since April. However, this move was only a correction and its extent will not be significant.

Nevertheless, the dollar's appreciation potential is limited as the new expectations have been priced in (a hike in December is currently the base case scenario). In spite of this situation, the chance for a more significant EUR/USD rebound is going to be limited by the weakness of the euro. After the expectations for the Fed's plan have been clarified, the market currently focuses shifts to the European Central Bank.

On Thursday, ECB President Mario Draghi is scheduled to testify in the European Parliament. The Frankfurt-based chief will have to explain why the central bank still has not met its inflation target (the inflation rate is negative against the target: close to 2 percent).

During the October press conference, Mario Draghi suggested that the ECB may increase the stimulus as soon as in December. Rumors had it that the central bank will cut the deposit rate and increase the asset buying program. Mario Draghi is expected to confirm a similar scenario when testifying before the European Parliament. It will push the euro lower.

In the last week the European Commission lowered the forecast for the GDP growth and the inflation rate. The decision has increased pressure on the ECB to provide more support for the economy. The economic reports in the last few weeks have been rather mixed. The data from the German industry has recently disappointed and today's quite good report on international trade was not enough to limit the bad impression.

Zloty positively reacted on the new government

November's inflation report from the National Bank of Poland was less optimistic than the previous publication. The average GDP growth is expected at 3.4 percent within the forecast's horizon. The expansion will be supported by a strong labor market, low commodity prices and low interest rates. The NBP expects that the external factors will be neutral for the Polish economy. Currently, there is no demand pressure to support inflation.

On Monday, the new government was presented. Investors welcomed the information rather positively. As a result, the zloty gained after the release. Moreover, comments from the economic experts from the new government were rather calming. The government has set a goal to balance the budget by the end of its tenure, and the idea of using the NBP to support credit action has been abandoned.

On Friday, a set of important reports concerning the Polish economy are scheduled. The major reading will be the GDP growth. The 3.3 percent growth is forecast in the third quarter 2015. Growth was the same in the last quarter. Moreover, the CSO will release the inflation rate (minus 0.8 percent is expected).

A negative factor affecting the zloty has lost part of the impact. It pertains the heightened political risk and the Fed's tightening plan. As a result, the zloty posted a broad increase.

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 the written permission from Sp. z o.o is prohibited.

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