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Daily analysis 05.05.2016

, author:

Piotr Lonczak

After a brief pause, the dollar resumed gains. Another weak report from China. The zloty steady at low level.

Recently, volatility prevailed in the markets. On Tuesday, the EUR/USD hit the highest level since January, but later it lowered for three consecutive days.

The latest reports from the eurozone were quite good and supported the common currency. Moreover, the ECB is currently not considering any additional stimulus, which also helps the euro. In contrast, the latest data from the US was clearly below the forecasts, thus it negatively affected the dollar.

Moreover, the Fed's stance that was presented in the latest statement, suggested a slow pace of interest rate hikes. But the situation changed on Tuesday, after the speech of Atlanta Fed President Dennis Lockhart, who suggest two interest rate hikes this year. Moreover, he pointed at the June meeting as an appropriate moment for the initial hike. San Francisco Fed President John Williams also suggested a similar scenario.

The comments of Lockhart and Williams suggest that the latest report did not affect the Fed's view. As a result, the dollar was supported. Later on, on Wednesday, the ISM report exceeded the expectations. It increased to 55.7 - clearly above the forecast. In addition, the report on industrial orders surprised positively, which alleviated the impact of poor ADP data.

Eventually, the dollar increased against the euro and other major pairs. However, for the move to continue the most important factor will be the report on the employment situation scheduled on Friday. The market consensus is for a 200k jobs gains in the non-farm sector and the unemployment rate was steady at 5 percent.

China negatively affected the sentiment

Today's data from China disappointed. After a weaker than expected report on the industrial PMI index, the data on services missed the forecast. In April, the service PMI index dropped to 51.8 from 52.2 in the prior month. The forecast was for the 52.6 level.

The latest reports from China recalled economic difficulties in the country. Although a negative scenario of a severe slowdown is not very likely, the economic expansion is clearly weaker. This factor negatively affected the broad market sentiment and pressured the commodity markets. The copper price dropped for the third day in a row.

On Thursday, the zloty exceeded losses against all its major pairs. The Polish currency remained under pressure. The factor responsible for the situation was the heightened political risk. Currently, the probability that the Moody's agency will cut the nation's rating is quite high.

Moreover, the zloty was pressured by weak economic reports. The latest data on the PMI index, industrial production and retail sales missed the expectations. Moreover, the report on the price index showed rising deflation pressure.

Given the situation, the MPC may consider adjusting its stance. On Friday, the Polish monetary authorities will decide on rates. The MPC is expected to leave rates unchanged. More importantly, will be the press conference of NBP President Marek Belka. In the NBP chief signals a chance for adjustment, the zloty may decline further.


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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