Afternoon analysis 26.08.2015

, author:

Piotr Lonczak

The euro exceeded losses against the dollar. The major currency pair was pressured by the US reports and rumours that the European Central Bank may act. The zloty was stable, but the currency is getting more susceptible to the risk aversion.

Recent developments spur speculation that the European Central Bank may act in response. A slowdown in the Chinese economy may hurt the eurozone's expansion. This factor will negatively affect the inflation rate. Moreover, record low commodity prices limit the scope for a prices rebound. Recently, the oil price hit the lowest level since the beginning of 2009.

The Frankfurt-based institution may act to strengthen tools used earlier. Investors focused at the bond buying program conducted by the ECB. Under the basis plan, the scheme will work until September 2016. However, there were some rumours that the program may be extended.

On Tuesday, the ECB Vice-president Vitor Constancio said the monetary authorities will not make any sudden decisions. However, Peter Praet from the ECB said today, that the current situation is a risk for the ECB's inflation goal (near 2 percent against 0.2 percent currently). As a result, the speculation that the ECB may introduce additional tools increased. The ECB President Mario Draghi will have to address this issue in the next week after the decision on interest rates.

Solid reports

Today's data on orders for capital goods in the US exceeded the forecast. Orders increased 2 percent on a monthly basis against the minus anticipated 0.4 percent. The core industrial orders, which exclude volatile transportation equipment orders, increased 0.6 percent against the plus 0.3 percent that was forecast. Moreover, the prior month data was revised up.

These were additional positive numbers from the US economy. On Tuesday, the Conference Board consumer confidence index was better than the forecast. New home sales data also exceeded the forecast. Although some reservations were sparked by the industrial expansion indexes, the overall assessment of the US economy is positive.

Rumours that the ECB may introduce new tools and some positive figures from the US increased pressure on the EUR/USD. However, the major factor pressing the EUR/USD was the risk appetite that drives carry trade.

Zloty showed some weakness

The Chinese crisis hurt the emerging market currencies. The nervousness did not hit the zloty, that was relatively steady. The Polish economy is not significantly linked with China and low commodities prices support growth.

After the People's Bank of China lowered the interest rates, the markets rebounded in spite of some turmoil in the Shanghai market. Although the zloty showed some weakness, the risk of a significant drop is limited and the base scenario is stabilization.

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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