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Daily analysis 27.08.2015

27 Aug 2015 13:29|Marcin Lipka

The testimony from William Dudley combined with good macro data, have clearly helped the American stock market and caused appreciation of the dollar. Data and a meeting in Jackson Hole. The zloty remains relatively stable, even though aversion towards risk is still present.

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

  • 14.30: The GDP from the USA for the second quarter, review of data (estimations: +3.2% q/q, annualized, first estimation indicated an increase +2.3%).
  • 14.30: Jobless claims in the USA (estimations: 274k).

Combination of advantageous events supported the dollar

Yesterday there were a few elements that caused an explosion of optimism on the American shares market. First of all, data regarding the orders for durable goods in the USA were solid. Additionally, data for the last month were reviewed upwards. This increases optimism regarding today's publication of the GDP for the second quarter.

However, yesterday's testimony from William Dudley was most important in the context of recent events. It was particularly followed because the first part could be received as a statement from the Fed. The Chairman of New York's Federal Reserve noted that due to the events abroad the risk for the American economy has recently decreased.

Dudley said that a slowdown of the Asian economies and a lower level of global growth can cause a reduced demand for American products and services. Additional problems are generated by variability on the financial markets. However, Dudely did not define whether it is a temporary matter.

On the other hand, he defined the enforcement of the American dollar as temporary (which is positive for the USD, because it decreases the chance for the Fed to perform the tightening due to the strong buck – author's footnote) as is a decrease on the market of raw materials. Thus, one can assume that these two reasons and their consequences, will not be the main elements creating the monetary policy and even if they will last through the coming months, they do not need to stop the hikes.

In the second part of his testimony, Dudley claimed that currently “the decision about hikes in September is less convincing”. At the same time, he added that it can be more credible when there will be more information regarding the American economy and the events abroad. He also emphasized that this is his own opinion.

In general, it seems that the testimony from the chairman of New York's Fed brought the following conclusions. First of all, the Fed takes note of what goes on abroad. Second of all, it is not sure if the observed events are temporary. Out of context, one could assume that rather yes. And finally, the hike in September is very unlikely, but an increase in interest rates this year is still the base case scenario.

Thus, a development in the situation on Wednesday was perfect for the capital market on the other side of the ocean. It indicated that the situation is not bad at all, but despite this the Fed will extend the policy of zero interest rates, probably by a quarter. Additionally, it showed that the monetary authorities have everything under control.

The dollar reacted well to this information. Mainly due to a very strong positive correlation to the stock market. Quotations of the buck were also supported by the perspective of the monetary tightening still being the base case scenario. This will happen, despite the fact that there appeared many opinions about the Fed leaving interest rates unchanged until the end of the year.

A decrease in the EUR/USD and depreciation below 1.13, was also influenced by the reduced interest in the euro. Recently, the purchase of the European currency were fuelled by the liquidation of carry trade, but when the situation calms down this reason will lose its significance. Also, one can expect a reversed movement.

Few words about the foreign market

Today, there will be a review of the GDP data from the USA for the second quarter. After yesterday's data it can be stronger than the consensus indicates, which is +3.2%. A meeting of the financial representatives in Jackson Hole is also important. The testimony of the Federal Reserve vice chairman, Stanley Fisher will be the most significant. However, it is planned on Saturday. It is possible to receive some interesting information from interviews with James Bullard and Dennis Lockhart. Considering yesterday's testimony from Dudley, who is more dovish than the two mentioned above, one should rather expect the appreciation of the dollar. However, it probably will not cause the EUR/USD to go below 1.12.

Stabilisation remains the base case scenario

A strong increase in the American stock market and good sentiments on the European floors combined with a smoother monetary policy of the developed economies, should support the zloty. However, the aversion towards risk is still high and yesterday's events allowed only the EUR/PLN to go to the area of 4.22-4.23. Considering the appreciation of the dollar, the basket consisting of the two main currencies is still higher to the zloty than yesterday.

The current situation will probably change by the end of the week. The national currency will remain stable. However, in case of a sudden deterioration of sentiment one can expect a quick wear off of the PLN, especially to the euro, by 0.02-0.03 PLN.

Anticipated levels of PLN according to the EUR/USD rate:

Range EUR/USD 1.1250-1.1350 1.1350-1.1450 1.1150-1.1250
Range EUR/PLN 4.2100-4.2500 4.2200-4.2600 4.2000-4.2400
Range USD/PLN 3.6900-3.7300 3.6700-3.7100 3.7100-3.7500
Ranger CHF/PLN 3.8900-3.9300 3.8900-3.9300 3.8900-3.9300

Anticipated GBP/PLN levels according to the GBP/USD rate:

Range GBP/USD 1.5450-1.5550 1.5350-1.5450 1.5550-1.5650
Range GBP/PLN 5.7800-5.8200 5.7600-5.8000 5.8000-5.8400

27 Aug 2015 13:29|Marcin Lipka

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 acknowledgement of the source is prohibited.

See also:

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Afternoon analysis 26.08.2015

26 Aug 2015 13:19

Daily analysis 26.08.2015

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Afternoon analysis 25.08.2015

25 Aug 2015 13:27

Daily analysis 25.08.2015

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