Afternoon analysis 19.04.2016:
The euro higher before the ECB meeting. Today's data hurt the dollar. A broad weakness of the zloty. Data from Poland missed the forecasts.
The ECB's bank lending survey showed an ongoing improvement (data regarding the first quarter 2016). Credit conditions for enterprises improved further and demand for credit increased. As a result, the value of credit increased.
According to the ECB banks are using the money from the asset purchase program to increase credit. The ECB's negative deposit rate also supports the credit growth. However, in spite of easing the credit conditions they remain quite tight in the long run perspective.
Report from the ECB suggests that the tools introduced by the monetary authorities to spur the credit action are working. As a result, the Frankfurt-based institution may be less eager to introduce new measures. A similar view was supported by the latest critique of the ECB's actions from the German lawmakers. The German politicians has argued the loose monetary policy hurts retirement savings and supports growth of populism.
On Thursday the ECB is scheduled to release its monetary policy decision. According to the market expectations it will leave rates unchanged. As usual, the most important will be Mario Draghi's press conference. It may determine the situation in the EUR/USD market if the ECB president gives some hints on the further easing later in the year. The latest survey from the Bloomberg agency showed the ECB will act in September.
Developments in the EUR/USD market do not reflect expectations for further easing from the ECB. The euro gained recently not only against the dollar, but against the franc and the pound.
On Tuesday the US housing market data missed the forecasts. Building permits dropped to 1086k form 1177k and against the 1200k that was expected. Housing starts declined to 1089k from 1178k and against the 1170k that was forecast.
The dollar extended losses after the release. The US currency did not exploit the hawkish comments from the Boston Fed President. Eric Rosengren said the central bank will raise rates at a faster pace than the market anticipates.
Today's data from the Polish economy surprised negatively. Industrial production increased 0.5 percent on a yearly basis. The reading was worse than the 3 percent forecast. In the prior month production increased 6.7 percent. Moreover, the data on retail sales also missed the expectations. Retail sales increased 0.8 percent on a yearly basis against the 3.4 percent that was expected and 3.9 percent increase in the prior month.
Reports were clearly worse than the yesterday's data on the labor market. Nevertheless, the assessment of the Polish economy remains positive. Reports on the labor market suggest strong employment increase. The situation may reflect that companies are pursuing investment plans in spite of transitory drop in sector's activity. Moreover, the report could have been affected be the seasonal factors due to holiday period.
Although the economic situation remains positive, the zloty's developments are worrying. The Polish currency has recently preformed worse than the forint. It could have been due to heightened political risk. In the nearest future the zloty will remain weak with a tendency to drop further.
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