Afternoon analysis 12.02.2015

The euro rebounded from the lowest level in twelve years. Weak reports pushed the dollar lower. The zloty remained near multi-year lows against the dollar and the pound despite some gains.

The EUR/USD managed to tame losses after hitting the lowest level in twelve years. However, the overall rebound was rather limited, and later the move lost its pace. Market behavior suggests that the return of the losses is only a matter of time.

Thursday's data on unemployment claims surprised by falling clearly below expectations. The number of new unemployed stood at 289k – less than 205k expected and below 325k in the previous week (revised from 320k).

Labor market expansion – especially given recent data on non-farm payrolls (295k increase) – is still solid. However, some doubts have been sparked by latest reports on retail sales. The data is important due to the fact, that the consumption sums up to two thirds US GDP.

Retail sales dropped 0.6 percent in February – a result below plus 0.3 percent expected. Moreover, it was a third drop in a row. Sales dropped in 9 from 13 major reported categories. However, a weak result has been explained by strong winter is some regions of the US.

No changes

The major factors underpinning trend in the EUR/USD market haven't been altered. Quantitative easing launched by the European Central Bank put the euro under pressure. In turn, the expectations for the Federal Reserve to rise rates in mid 2015 are still valid. Today's somewhat weaker data haven't altered this view. As a result, the dollar remains in the position for further appreciation.

In the meantime, the reports from the euro zone were not supportive for the euro. The industrial production growth missed expectation. It dropped 0.1 percent – a result below plus 0.3 percent projected.

Benoit Coeure from the ECB said that the central bank has bought bonds for 9.8 billion euro since the QE was launched on March 9. As a result, bond yields in the euro zone countries hit record low levels. The situation in debt market was praised by the ECB president Mario Draghi is his speech on Thursday – lower yields ease tensions in public finance.

Stronger zloty

Recently, the dollar and the pound hit multi-year highs against the zloty. Today, the Polish currency recouped some losses, but it sill remains at very low level. The zloty dropped against the euro and the frank.

The Polish currency is under influence of the sentiment in broad market. The situation may change, if the Federal Reserve refrains from the expected drop of “patience” in its statement. However, a similar scenario is not very likely, what puts the USD/PLN in the position to further gains. The zloty may continue appreciation against the euro.