Afternoon analysis 06.11.2017

Low volatility of the main currency pair - the euro is weaker despite better than expected data. The zloty is under slight pressure, but the the level of fluctuations remained limited.

EUR/USD pair below 1.16

During the first trading day of the new week, the euro slightly depreciated. This was despite a series of better than expected macroeconomic data from the eurozone. The final reading of October's activity index in the service sector (PMI) turned out to be better than the initial data.

The investors' sentiment in the single currency area was not better in 10 years: the sentix economic index indicated its highest level since July 2007. Its components increased both as regards the assessment of the current situation and future expectations.

Today, the European Bureau of Statistics (Eurostat), on the other hand, presented September's data on producer inflation (PPI), which also exceeded expectations. Inflation at the level of 2.9% amounted to 0.1 percentage points from the market consensus, as well as the second month in a row of its growth and the highest level since May.

The EUR/USD quotations followed a clear downward trend, although the scale of changes, on the other hand, was limited. Friday's quotations were closed at approx. 1.162, whereas today the main currency pair oscillated around the 1.16 boundary, reaching the lowest level of 1.158. The US currency quotations remained stable - the dollar index (DXY) was at Friday's level for most of the day.

Therefore, this movement was generated to a greater extent by the weaker euro condition than the stronger dollar. The eurozone's currency was also losing to the franc or the yen. However, earlier reports of the possible William Dudley's resignation (Member of the Federal Reserve) have been confirmed, although according to the official announcement from the New York Fed, this will be in the middle of next year and not in the spring.

This did not generate a more significant movement in the dollar trading, which was moving all the time in the narrow fluctuation range that we observed today. The calendar of scheduled macroeconomic events for the following hours is not provided with important publications/speeches, which could cause more significant movements in the main currencies' quotations.

Slightly weaker zloty

The Polish currency was in a slightly worse condition today, although the changes' range was limited. The zloty was losing about 0.4% to the globally recovering pound (after the decision on rate hikes) which reached 4.80 PLN per unit. On the other hand, the slightly worse euro condition in the following hours caused the EUR/PLN quotations to gradually decrease from around 4.248 to 4.239.

However, as the beginning of the US trading session approached and increased US investors activity, the zloty started to slightly lose again and the EUR/PLN quotations returned to approx. 4.245. Moreover, the USD/PLN pair breached the 3.66 level to the upper limit of the last trading days. The zloty may be disturbed by a slightly worse sentiment in the market - the main European market's indexes remained below the line, and the Swiss currency gained, which is considered to be a "safe haven" in periods of increased risk aversion.

Moreover, in the following hours, we are likely to observe a stabilisation of the zloty due to the low market's volatility and the lack of significant publications. Wednesday's statement and press conference after the two-day meeting of the Monetary Policy Council may turn out to be important for the valuation of the zloty. A tightening of the stance on monetary policy could strengthen the Polish currency, although the chances for such a scenario are limited taking into account its previous dovish attitudes.

Tomorrow's preview

At 8.00 a.m., the Federal Statistical Office (Destatis) will publish September's data on industrial production in Europe's largest economy. The data on orders in the industrial sector presented today (September) positively surprised with the month-on-month increase of 1%, while a 1.5% decrease was expected. Data for the previous month was also revised upward from 3.6% to 4.1%.

The median of market expectations indicates a 0.8% decline in production compared to August. However, the data on orders in the sector may suggest that September's reading might be higher than expected. In particular, if there is a positive change in production, the euro could especially benefit. However, it should be remembered that the correlation between the aforementioned indexes is not ideal.

Three hours later, Eurostat will present September's data on retail sales in the eurozone (and the whole European Union). The single currency area has been growing at an increasing pace in recent quarters, however, retail sales data for July and October have failed to meet market expectations. Compared to the analogical month of the previous year, in August sales were still 1.2% higher, but this was the lowest growth pace since December 2016.

The market consensus indicates an increase in retail sales in September to 2.6% per year and 0.6% per month. At the same time, it would be one of the highest readings this year, which could confirm the good eurozone's economic condition and slightly strengthen its currency. However, the impact of this data on its quotations may be limited. Political issues related to the introduction of tax system reform in the US or geopolitical tensions on the Korean Peninsula may now dominate.