Afternoon analysis 16.06.2017

The dollar was lower today after Thursday’s gain. Weak data from the US real estate market could hamper the dollar’s potential appreciation – EUR/USD approached 1.12. The zloty was in a better condition after Thursday’s losses.

A calm Friday

The Friday session was a relatively calm one. Better sentiment could be observed on the markets which translated to European stock indexes rising. A higher appetite for risk coupled with a generally stronger dollar (in the context of recent days) and maintaining an accommodative monetary policy by the Bank of Japan caused the Japanese currency, considered to be a “safe haven” in times of increased market uncertainty, to lose value.

The Yen lost around 0.3% today to a slightly weaker US currency – USD/JPY was just above 111, which was the highest level in two weeks. The EUR/USD traded in a relatively narrow range between 1.115 and 1.118. However, at 2.30 p.m. some negative data for the dollar were published from the US real estate sector that could hinder its potential appreciation.

The Census Bureau said today in a report that building permits tumbled 4.9% month-over-month to 1.168m and housing starts by 5.5% MOM to 1.09m, which were the lowest levels since August and September 2016, respectively. In this context, the consumer sentiment index published today by the University of Michigan could prove important for the dollar. Should they be below the anticipated 97.1 pts, the US currency could lose value and EUR/USD could increase above 1.18, which was the upper boundary of today’s trading.

Zloty undid some of the losses

After Thursday’s relatively big losses mostly due to a fast appreciating dollar, the Polish currency was today in a better condition. It gained against most of the main currencies and also against the Hungarian forint (~0.3%). Around 3 p.m., USD/PLN was trading around 3.77 and EUR/PLN 4.215. The zloty, therefore, undid about half of the losses incurred on Thursday.

The behaviour of the US currency could prove important for the zloty – should today’s trend continue and EUR/USD exceeded 1.12, the Polish currency could gain as well. The beginning of the next week could, however, bring more volatility to the zloty, as macroeconomic data from the Polish economy will be published that could hint at GDP growth rate in the second quarter.

Next week’s preview

The next week could be important for the zloty. Although the recent slump caused by the appreciating dollar after the Fed’s statement will probably be temporary, next week’s data could impact the zloty’s value.

The Polish Central Statistical Office (GUS) will publish on Monday data regarding the average earnings and employment in the corporate sector in May. The former grew in recent months by above 4% (on a yearly basis) - in April it increased by 4.1%, in March by 5.2% and in February by 4.0%. The employment growth rate between January and April was in a very narrow range between 4.5% and 4.6%. The median of market expectations points towards 4.9% average earnings and 4.6% employment increases.

On Tuesday GUS will share potentially more crucial data regarding industrial production and retail sales in May. Both readings didn’t meet expectations in April – the industrial production miss was the bigger, however, it decreased by 0.6% YOY, while a 2.4% YOY growth rate was expected. Retail sales, on the other hand, recorded a modest decline in growth rate from 9.7% YOY to 8.1% YOY, while a 0.8 pp reading was higher than expected.

The current market consensus suggests that the industrial production growth should pick up and record an 8.6% YOY increase while retail sales a 9.1% YOY increase. Investors will probably focus on those two readings as another set of weak data could point towards a lower than expected GDP growth rate in the second quarter. The zloty could lose value in the case of such a scenario.