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Daily analysis 20.04.2016

, author:

Marcin Lipka

The campaign against Brexit might lessen the selling pressure on the pound. Kuwait oil workers have ended the strike. Weaker data from the US pushed the USD lower. The zloty remains weak despite better global sentiment.

  • No major economic data which may significantly affect the analyzed pairs.

The campaign against Brexit

Since the beginning of the week, the campaign against Brexit has become more serious. The Treasury published a report on Monday which notes the negative consequences of leaving the EU by Britain.

The 200-page document assesses the extent to which the weakening of the trade ties to the EU and how smaller-than-expected foreign direct investments may impact on the GDP. According to the report, depending on whether the exchange of goods and services will run on principles similar to those that link Norway to the EU currently, or if it will apply to the general conditions of the WTO, the GDP will be lower from 3.8% to 7.5% in comparison to the baseline scenario.

The Treasury emphasizes that, “The UK would be permanently poorer if it left the EU.” This loss, according the scenario, would mean lower household incomes in the amount of 2600 pounds to 5200 pounds on a yearly basis in 2030. The authorities also point out that the losses will be much greater than the contributions paid to the EU budget.

A part of the campaign against Brexit can be regarded in a letter from 8 former US treasury secretaries which is published in The Times newspaper. It came two days after Barack Obama’s visit to the UK, which warned the Brits against leaving the EU. The letter drew attention to the disorders associated with the exchange of goods and services as well as the difficulties presented by re-negotiating new trade contracts.

Generally, it can be concluded that more involvement from the US should reduce the risk of Brexit. It is also worth noting that recently more opinion polls have been published. Since the beginning of the month, 11 surveys have been conducted and none of them show that Brexit support is leading. We may conclude that the odds are moving slowly toward the “no Brexit” camp. Incoming opinion polls should also be crucial as they may show whether the Cameron campaign was successful. If the trend remains in place, the pressure on the pound may lessen.

The oil drops after Kuwait strike ends

In the early hours of Wednesday, news agencies reported that oil workers in Kuwait ended the strike. The loss of production since the weekend can amount to around 1.5-2.0 barrels a day, which is actually what has reduced the global overproduction to zero.

According to Bloomberg reports, Kuwait should return to production at around 3 million barrels a day in the next three days. A contract for WTI, which is expiring today, fell in the morning by around 3% to around 40 USD/barrel.

Currently, the base case scenario for oil is to stay around 40-45 USD, and the moves are expected to be generated from US inventory data. In the next few weeks, the perspective the market should begin to speculate whether the main oil producers are set to increase the output. If the answer is positive, then the global glut may remain longer than the IEA anticipated in the most recent report. As a result, it should reduce the probability of further price appreciation, especially in the case of weaker global macro data.

Weaker dollar

Yesterday's weaker than expected data from the US real estate sector reduces the probability of monetary tightening in the US in the first half of the year, despite the relatively hawkish comments from Rosengren. Additionally, the GDPNow document from Atlanta’s Fed still shows virtually no growth in the first quarter of this year.

Taking into account the recent developments in the Japanese yen, investors may become more and more skeptical concerning the possibility of a weakening of the euro, even if tomorrow's ECB meeting is more benign than expected. As a result, the chance of a reversal of the upward trend of the EUR/USD may be greater when better data flows from overseas, and the probability of monetary tightening by the Fed increases. For now, however, we really have to deal with the opposite situation, so a weaker dollar against the euro should remain in place.

The zloty remains weak

The pressure on the zloty remains as is despite the relatively good global sentiment. Yesterday, the US S&P 500 index returned to 2,100, which is only 1.5% below the all-time-high. Additionally, the monetary policy of the Fed and other leading central banks is loose, which should also support currencies in our region, including the zloty.

The domestic currency, however, still remains weak, which is also seen in relation to the forint. The PLN/HUF is currently testing at the 72 level. This means that since the beginning of the month, the Hungarian currency gained more than 2.5% against the Polish currency. Taking into the account the relative weakness of the PLN, we should expect that when the deterioration of global sentiment occurs, the euro, the dollar and the franc can quickly increase by around 1% and push the pairs toward 4.35, 3.83 and 3.97, respectively.


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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