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Afternoon analysis 27.11.2015

, author:

Marcin Lipka

The euro dropped to the lowest level since April. The German household worried by the outlook for rising unemployment. The zloty gained against the franc and the euro. The Polish currency stayed at the low level.

The market expectations before the European Central Bank meeting are responsible for the euro drop. Next Thursday the Frankfurt-based institution will decide on interest rates. The forecast before the meeting are very dovish.

The deposit rate may be lowered by 20 basis points and the QE may be increased by 20 billion euros. Moreover, it is possible that the QE program will be open-ended. The program would be limited if inflation rebounds and the labor market improves. Moreover, the ECB may buy low-quality assets and municipal debt (more on expectations in the previous commentary).

Given the situation, the euro dropped on Friday. The EUR/USD declined to 1.0577. It was the lowest level since April. The next minimum is the 1.0520 level. After dropping below the level, the common currency will hit the lowest level against the dollar since 2003.

The expectations regarding the ECB summit spurred the rumors that the Swiss National Bank may act to weaken the franc. Recently, SNB President Thomas Jordan has reiterated that the franc is overvalued. As a result, the franc dropped against the dollar to the lowest level since 2010 and declined against all major currencies.

German household sentiment

The GfK index dropped to 9.3 from 9.4 in the previous month. It was the lowest level since February. The index GfK has declined for the six last months.

The report showed stronger willingness to spending. It increased three points to 48.9. The tendency is coherent with the reports on consumption that has risen in the last three quarters. Moreover, the Bundesbank said that domestic consumption will support the GDP growth when the global economy decelerates.

However, almost 40 percent of consumers is worried that the unemployment rate will increase within the months to come. In contrast, only 8 percent believes that the employment situation is going to improve. If the scenario is fulfills, consumption - one of the major factors that supports growth, will be weakened.

Weak zloty

On Monday the CSO will publish the final report on the GDP growth in the third quarter. The flash report exceeded the forecast as the economy expanded 3.4 percent. The next report will include data on the structure of the GDP. As a result, a more detailed analysis of the data will be possible. On Tuesday the report on the PMI index is scheduled.

The recent reports from Poland were mixed. On one hand, the readings on retail sales were quite good. Improvement in consumption would have been caused by expansion of the labor market. The employment is record high and the unemployment rate dropped to the lowest level since the end of 2008. On the other hand, the reading on industry and construction were rather weak. Given the situation, the next CSO release will be very interesting.

On Friday the zloty gained slightly. The Polish currency gained against the euro, the pound and the Swiss franc. In contrast, the dollar hit today new high. The US currency stood at the highest level in 11 years.


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 Cinkciarz.pl Sp. z o.o is prohibited.

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