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Afternoon analysis 08.01.2018

8 Jan 2018 15:11|Bartosz Grejner

The dollar strengthened in relation to the euro, despite the absence of positive data from the US labour market and better than expected data from the eurozone. The zloty was under pressure due to dollar appreciation. A dovish message from the Polish MPC on Wednesday may even weaken it further.

EUR/USD again below 1.20

Despite a relatively weak report from the US labour market (data failed on employment growth), since the first part of the Asian session, gradual dollar strengthening could be observed. Around 3.00 p.m., the dollar appreciated in relation to the euro almost 0.5% - the exchange rate of the main currency pair, the EUR/USD pair, fell to around 1.197, the lowest level since December 29th.

The euro, despite positive data from the eurozone, depreciated in relation to the dollar. The economic sentiment index (ESI), which measures the sentiment among businesses and consumers and is being compiled by the European Commission, increased to 116 points (114.8 pts expected), which was also the highest since October 2000. Data on retail sales also positively surprised - an increase in November of 2.8% year-on-year turned out to be 0.6 percentage points above expectations, while the month-on-month increase of 1.5% was the highest in 16 years.

The euro and dollar are likely to rebound from the recent strong movements in this pair. Fundamental factors can also affect dollar appreciation. In the eurozone, it is unlikely that interest rates will increase this year (maybe the bond-buying program will be reduced), while increases are widely expected in the US. Moreover, fiscal stimulation in the US in the form of tax cuts may also contribute to accelerating inflationary processes, which will also have a positive impact on the dollar.

In the next few hours there are no significant macroeconomic publications scheduled, although speeches by the Federal Reserve Monetary Committee (FOMC) members will be held: Raphael Bostic (6:40 p.m. CET), John Williams (7:35 p.m.) and Eric Rosengren (10:00 p.m.). Although the dollar's fluctuations may increase slightly close to the time of their occurrence, ultimately their impact on its quotation should be limited.

Zloty below in red

During today's session zloty weakening in relation to the main currencies was observed, as well compared to the regional currencies (e.g. the Hungarian forint or the Czech crown). The catalyst of these falls was the aforementioned dollar appreciation. Although the market's sentiment remained good (positive data from the eurozone, increases in the main market indexes), the negative reaction of the zloty to the dollar's appreciation showed its dependence scale on external factors.

As a result, one dollar cost 3.48 PLN, which was even by 0.05 PLN more than on Friday. The euro also appreciated to the Polish zloty, the euro cost around 4.17 PLN, although on Friday it reached almost 2.5-year lows, 4.14 PLN. In relation to the zloty, the franc and the pound also gained about 0.5%.

On Wednesday, a statement and a press conference after the two-day meeting of the Monetary Policy Council will take place. The last lower than expected reading on consumer inflation may suggest that the Council's message will be relatively dovish, which may further weaken the zloty. At the end of the week, inflation data in the USA will be published - if its good reading translates into a clear dollar appreciation, we could be dealing with continuation of the rebound on the zloty.

Tomorrow's preview

At 8.00 a.m., the Federal Statistical Office (Destatis) will publish November's data on industrial production in the largest European economy. Today's data on new orders in this sector has failed to meet market expectations, with a drop of 0.4% per month (an increase of 0.1% was the consensus), although an annual increase of 8.7% was the third best in over 6 years.

On the other hand, the sector’s revenue grew by 4.6% in relation to October. In October, production fell by 1.4% compared to the previous month (the biggest fall in 2017). The median of market expectations indicates an increase by 1.9% month-on-month in November.

At the same time, Destatis will present November's data on the trade balance. The market consensus assumes an increase in the surplus from 19.9 billion EUR last month to 20.7 billion EUR. If the aforementioned data was positive, the euro could get some support, which could have a positive effect on the Polish currency. The zloty is sensitive to changes in the dollar, today's appreciation in the dollar caused a noticeable decrease in zloty value.

Apart from that, there are no significant publications scheduled for tomorrow that could noticeably affect the main currencies quotations. At 12.00 p.m. and 4.00 p.m., the NFIB data on climate index among small companies in the US and the number of vacancies in the US (JOLT report by the Bureau of Labor Statistics). The dollar could increase slightly, if the consensus is exceeded in both cases (108.4 points and 6.05 million respectively), although potential increases seem to be limited.

Friday's consumer inflation data (CPI) in the USA in December may be the week's main event. Until then, dollar movements may be within a limited fluctuation range. A significant reaction in the currency market can already be observed in the case of a deviation of 0.1 percentage points from 1.8% per year.

8 Jan 2018 15:11|Bartosz Grejner

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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