Daily analysis 05.10.2016

, author:

Marcin Lipka

The EUR/USD is clearly growing after information from Bloomberg agency. The pound is increasing its minimum against the dollar, as well as against the zloty. The general condition of the Polish currency before the MPC meeting today is relatively stable. The EUR/PLN is at the level of 4.30.

Most important macro data (CET – Central European Time). Estimations of macro data are based on Bloomberg information, unless marked otherwise.

  • 14.15: ADP data regarding new workplaces in the American private sector (estimations: 163k).
  • 16.00: ISM index for services sector in the USA (estimations: 53 points).

Euro is clearly higher

We saw a clear rebound of the EUR/USD from 1.1150 to 1.1230 yesterday afternoon. This move was caused by information from Bloomberg agency about a discussion regarding the pace of easing reduction within the ECB. This bulletin caused a large volatility. However, this information will probably not become a fact in the near future.

Bloomberg referred to anonymous sources from the ECB. They were to say that the pace of quantitative easing reduction will be at the level of 10 billion euro per month. It’s likely that some investors quickly combined both information. Primarily, if there are discussions regarding limits in the QE, there are also small chances for an increase in the QE. Secondly, the fact that the QE operation has not been extended at the previous ECB meeting, may suggest that its expiration would begin in March 2017.

We can partially agree with the first concept. However, much will depend on the euro zone’s economic condition, as well as on inflation. Therefore, if the GDP or the HICP grow as expected, the scale of assets purchase and interest rates will remain unchanged. However, if there are signals of a decrease in economic activity, the ECB would probably not hesitate to increase the role of the monetary policy, just as the Bank of Japan does.

When it comes to the second concept, it seems very unlikely that the ECB would decide on a gradual reduction of the QE in March. On the other hand, there is a definitely larger chance that Mario Draghi and his associates will extend quantitative easing in its current form at one of the forthcoming meeting, for at least next six months. Therefore, the EUR/USD reaction has slightly overestimated the actual impact of the announcement.

Pound’s new minimum

The GBP/USD went below the 1.2700 level this morning. This means that the pound is at its thirty-year minimum against the American currency. The British currency was also weaker against the zloty. The GBP/PLN went down to 4.87, which is its lowest level in three years.

This situation didn’t change much after the PMI from the British services sector. It was slightly better than the market consensus (52.6 points vs 52.3 points), but the difference was too low to improve the situation. Moreover, the anxiety of “hard Brexit” re-appeared recently (it would hamper access to the common market for the British companies.) It’s definitely more significant to focus on comments from politicians, rather than the macro data for the time being. Taking into consideration the most recent statements from Prime Minister Theresa May, perspectives on the pound remains unfavorable.

Unchanged interest rates and stable zloty

At 12.00 AM, we received information that the MPC left interest rates unchanged. This was a highly anticipated decision. Publication of the announcement from the Council’s meeting, as well as professor Glapiński’s press conference, are scheduled for 16.00 (4.00 PM). The market will probably want to know whether the MPC will take monetary easing into consideration, if the GDP growth would go below the level of 3%.

Taking into consideration Glapiński’s testimony from last month, the chances for this scenario are limited. Therefore, confirmation of status quo for the coming months, as well as emphasizing that the next change in interest rates would be a raise hike, should slightly support the zloty. On the other hand, if the press conference leaves the market with an opposite impression, the PLN may slightly wear-off. The first solution seems more likely in our opinion. However, the move on the EUR/PLN should not be larger than 0.01-0.02 PLN in both cases.

It’s also worth focusing on today’s American data, especially the ADP readings and the ISM index for services. If the data is relatively positive, we may expect the USD/PLN to return to the level of 3.85. On the other hand, if negative readings from the United States and relatively hawkish MPC press conference overlap, it’s likely that the dollar would drop to 3.80-3.81 PLN.

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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