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01.02.2008 - Currency Markets Weekly Brief

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Date: 2008-02-01 16:16

Interest rates in Poland increased, by 25 basis points, to the level of 5.25% on Wednesday. What has to be mentioned is the fact that this is the highest level of interest rates since 2005. Analysts forecast a further 25 basis point hike in the first quarter of 2007. This increase did not have much of an impact on the Polish currency, with investors anticipating the Monetary Policy Councils decision. Though this decision did not affect the Polish Zloty, other factors did, such as the 2007 GDP report which pointed to a 6.5% increase during the year and more importantly the dynamic movement of the EURUSD market in the increase trend.


The increase on the EURUSD market resulted from negative feedback from the US market with new homes sales decreasing in December by 4.7% m/m against an expected increase by 1.5% and more importantly the nonfarm payrolls which decreased by 17,000 work places against an expected increase by 70,000. This comes as quite a surprise after better than expected results from the ADP nonfarm employment change which increased by 130,000 against an expected increase by 40,000. Obviously the decrease of interest rates to the level of 3%, by the FOMC, did not help the ailing US currency.

What could we expect during the next week? I believe that the EURUSD market should experience a corrective movement. This belief is based on negative technical signals from the market and the weakness of candlestick patterns within the boarders of the previous top.

On the other hand if the bulls show their power on the EURUSD market then we could be expecting record lows on both the USDPLN and EURPLN markets shortly.


Omar Arnaout