Daily analysis 10.10.2016

, author:

Marcin Lipka

The Mexican peso had strengthened before the presidential debate in the USA has even started. The pound remains weak. The zloty remains stable against the majority of the foreign currencies. The GBP/PLN remains at the level of 4.75.

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

  • No macro data that could significantly impact the analyzed currency pairs.

Mexican peso and American debate

The Mexican currency (MXN) has been showing how investors estimate the result of presidential elections in the USA. Whenever Trump’s quotations improve, the peso loses value. On the other hand, better quotations of Hillary Clinton have a positive impact on the MXN.

This time, however, the peso wasn’t waiting for the debate’s results and started gaining value at the opening of the trade. Before midnight, the USD/MXN declined to the 18.95 level (approximately 2% appreciation of the peso against the dollar). This strong move has been caused by the Washington Post news from weekend.

The debate alone did not bring any significant changes on the peso. During its first minutes, the USD/MXN was slightly decreasing, only to increase later on. However, a significant portion of the Mexican currency’s appreciation has been sustained. The quotation is at the level of approximately 18.95 for the time being.

The CNN ORC International survey is attracting attention, just as it did after the first debate. Taking into consideration its flaws (sample group of just 537 respondents and advantage of democrats within the sample group), it’s worth noting that Trump’s result was slightly better this time. Approximately 34% of respondents claimed that he was better than Hillary Clinton. Only 27% respondents indicated Trump’s victory two weeks ago.

CNN also asked which of the candidates surprised positively. Trump was a definite winner in this category (63% vs 39%). However, it’s possible that this was caused by relatively low expectations towards him.

When it comes to the recent surveys, the majority of them shows Clinton’s increasing advantage. According to RealClearPolitics (RCP), it’s currently at the level of 4.1%. This suggests that translating this result to support from particular states, Clinton would have 260 elector votes, while Trump would get 165. At the end of September, this result was 188 vs 165 in favor of Clinton. However, it’s worth noting that the results from several states are unclear. Therefore, the RCP didn’t grant 113 votes to neither of candidates.

The market’s reaction was relatively limited, not counting the Mexican peso. There was only a decline in the yuan’s value. However, this most likely wasn’t caused by information from the USA. The USD/CNY exceeded the 6.70 level. This is its highest level in six years. However, investors are most likely used that the Chinese currency is gradually wearing-off. Only a sudden, as well as supposedly uncontrolled depreciation could clearly deteriorate the global sentiment, just as it did last year. This scenario is very unlikely for the time being.

Pound remains weak

Monday’s trade on the pound shows that the British currency remains under serious pressure. The GBP/USD is at the level of 1.24. Moreover, the pound is near its five-year minimum against the zloty as well (approximately 4.75).

Financial press continues to write about a breakdown of the pound, which occurred on Friday night. Statement from chairman of the Nomura Currency Fund was also disturbing for the British currency. Andrew Soper told the Financial Times that the market was “basically dead” at its opening on Friday. Soper claimed that, “nobody wanted to buy the pound, there were no corporations, insurance companies, hedging funds, banks nor central banks.”

We can consider this as a negative signal, taking into consideration how significant was the overvalue of the British currency. Therefore, it’s possible that the market may be nervous towards even theoretically less significant information. We also can’t exclude the scenario, in which some of investors will try to take advantage of the pound’s situation and push the GBP/USD below 1.20. This would cause the GBP/PLN to reach the area of 4.60.

Calm zloty

Trade on the zloty remains calm. The EUR/PLN is moving near 4.28. We have been indicating the range of 4.25-4.30 as the base case scenario for this pair for many weeks. The Clinton-Trump debate also didn’t cause any larger changes on the PLN.

The situation on the yuan shouldn’t impact the zloty as well. Only a significant deterioration of sentiment towards China and a reaction of the global market, could endanger the zloty. However, this is not the base case scenario.

The behavior of the 10-year treasury bonds may theoretically be negative for the Polish currency. Their profitability remains above 3.00%. However, it’s worth noticing that changes occurred in a worldwide debt market. Profitability of the German 10-year bonds went above 0.00%. However, until the difference between German and Polish debt doesn’t clearly exceed 300 base case points, this signal shouldn’t be sufficient to wear-off the PLN. In conclusion, the base case scenario remains a relatively calm trade within the limited range of fluctuations.

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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