Afternoon analysis 30.08.2016

, author:

Marcin Lipka

Depreciation pressure on the EUR/USD has been strengthened by lower than expected inflation from Germany, as well as the reading from the American real estates market. The zloty continues to wear off. The dollar is above 3.90 and the euro has exceeded the level of 4.35 PLN.

Inflation and real estates market

In today's Daily analysis we have taken note that Stanley Fischer's testimony had a minor impact on the currency market. Therefore, his interview with TV Bloomberg can be interpreted as a neutral, or even a slightly positive factor for the dollar.

However, a lower than expected inflation from Germany could have caused a certain pressure on the euro. The reading was at the level of positive 0.4% y/y, which is 0.1 percentage points below the market consensus. This is not much, taking into consideration that the effect of low energy prices is beginning to decrease. On the other hand, the growth of food prices, as well as services sector has withheld (from 1.1% to 0.9% y/y and from 1.4% to 1.3% y/y, respectively).

It's possible that this will cause worse inflation readings from the euro zone. They will be published tomorrow. However, it's still too soon to speculate about an increase in scale of assets purchase by the ECB. We can't expect more from the forthcoming meeting than extension of the QE beyond March 2017. This element should not wear-off the euro, because a significant part of the market expects it.

An increase in prices of one-family houses was very near the estimations as well. The report was prepared by S&P Case Shiler for twenty American metropolises. The increase was at the level of 5.13% y/y, against the 5.1% estimations. A similar trend has been observed for approximately two years. This can be interpreted as a positive factor as well.

The pressure on the euro is related to a perspective of lower growth of prices, the lack of dovish suggestions from Stanley Fischer (or should we say a reversal of hawkish statements) and relatively positive data from the USA. This causes the EUR/USD to test the area of 1.1150. This tendency may turn, if tomorrow's ADP data is very weak. However, we don't expect this to happen. Therefore, an increasingly more attention will be focusing on the Labor Department's payrolls on Friday.

Zloty continues to wear-off

The afternoon has been unfavorable for the Polish currency. Investors are probably beginning to realize that the next GDP reading may be weaker than previously expected (we wrote more about it in today's Daily analysis). This may cause the speculations regarding a decrease in interest rates to grow.

Despite that the economic wear-off still seems temporary (investments in the public sector should accelerate), it may affect the private sector as well. Its activity may also not be as positive as estimated. The economic uncertainty, combined with the decision of Moody's on September 9th, as well as the MPC speculations regarding a decrease in interest rates, are causing that it's more likely for the EUR/PLN to move within the range of 4.35-4.40.

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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