Daily analysis 04.05.2016

, author:

Piotr Lonczak

The EUR/USD dropped after hawkish comments from the Fed. Commodities resumed declines. Polls hit the pound. The zloty gave away its recent gains.

On Wednesday, the euro dropped further against the dollar. However, on Tuesday the EUR/USD moved above the 1.1615 level. It was the highest level since January 2015.

Recently, the major currency pair was rising due to solid economic reports. The latest data on the GDP growth, the PMI indexes and the labor market, all exceeded the forecasts. Moreover, the ECB stance supported the common currency. ECB President Mario Draghi suggested that the monetary authorities are not going to increase stimulus very soon.

In the case of the dollar, the situation was opposite. The latest data suggests some deterioration in the economic situation. On Monday, the ISM index for industry disappointed. Moreover, the GDP data showed the lowest rate of growth in two years. And finally, the Fed has suggested slow pace of tightening.

Still, the EUR/USD gains were canceled on Tuesday. The major factor responsible for the situation was the speech of Dennis Lockhart (source: Reuters). The Atlanta Fed President said that the interest rates could be raised two times this year. Moreover, Lockhart added that a hike is possible in June. However, the futures market suggests only one hike this year in December. Given that situation, comments from the Fed spurred volatility in the markets.

The next factor which negatively affected the euro could have been the latest pool results on the Brexit. Yesterday's ICM survey showed that supporters of leaving the EU had a one percent lead. In contrast, the TNS pool suggests an opposite situation.

Rising political risk in the UK negatively affected the broad market sentiment. As a result, the euro dropped and the stock markets declined. This factor mainly affected the British pound that exceeded to slide against the dollar and the euro today. The political risk will be getting stronger before the actual vote at the end of June.

In addition, the commodities dropped. On one hand, it was due to a stronger dollar. But on the other hand, the oil price was pressured by the information that the OPEC countries increased output near record high of 32.64 million barrels daily (source: Reuters data). And finally, the Chinese reports disappointed. The PMI index was slightly worse than the forecast, which recalled the nation's problems.

Zloty susceptible for risk

The latest data on the PMI index showed deterioration in industry. Earlier, the reports on production and retail sales missed the expectations. In addition, the data on the price index showed that deflation strengthened. As the inflation declines and the economic data deteriorates, the MPC may consider an adjustment of its stance to more dovish.

Moreover, the zloty has been under the influence of heightened political risk. The Moody's agency will release its rating revision on May 13th. Currently, the probability of a grade cut is quite high. This factor may negatively affect the zloty.

The zloty hit local highs on Tuesday, but today the Polish currency dropped against all its major pairs. Currently, the probability of a stronger zloty is limited.

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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