Afternoon analysis 17.05.2017

The tension in the US weakens the dollar. The Polish currency has been in a good condition, however, there’s a chance of a price correction.

Further weakening of the US currency

After a disappointing CPI report from last week, political issues from the US exerted further pressure on the dollar. It caused the main currency pair, EUR/USD, to climb above the 1.11 level for the first time since Donald Trump won the election on 9th November. A degree of market uncertainty pushed the prices of both the yen and gold, which are labelled as ‘safe havens’ in times of trouble, significantly higher today. The Japanese currency was the strongest in relation to the dollar since 5th May and the price of gold per ounce closed in on the 1250 USD level, highest since 3rd May.

There are no important macroeconomic publications concerning the US market planned for this week which could significantly impact the dollar. The Federal Reserve published just yesterday the industrial production data for April which exceeded economists’ expectations. However, they were largely ignored by the market and overshadowed by the current political tension in the US. It seems highly probable that the dollar will be driven this week by the sentiment regarding the aforementioned political situation and potentially further information regarding the whole aspect.

Zloty still in good shape

The Polish currency gave back some of yesterday evening’s gains, although still remains fairly strong and close to recent records. The USD/PLN pair was still below the 3.80 level and the EUR/PLN close to the 4.20 level. CHF/PLN rose to the upward boundary of yesterday’s trading range, which is in part, due to a slightly stronger Swiss franc today.

The current uncertainty connected with the situation in the US could prove to be negative for the Polish currency. An appreciating yen and rising gold prices suggest an increased level of risk aversion. Should it be underlined by a fall in US equities, that could cause European stocks to go down as well, pulling the zloty lower in effect. If one adds a dovish MPC today, the zloty could lose value, potentially entering a correction phase of recent gains.

Tomorrow’s preview

The Office for National Statistics (ONS) will publish at 10.30 a.m. CET data regarding retail sales in April. They were below expectations in Match - +1.7% vs. a consensus of 3.4% compared to a year ago, which contributed to a depreciation of the pound. The market expectations point to an increase of 2.1% in April. After relatively positive labour market report from Tuesday, a positive signal coming from retail sales could strengthen the British currency.

At 2.00 p.m. the Central Statistical Office in Poland will publish data on how employment and wages changed in the corporate sector in April. The last months saw both rising at a fast pace underscoring positive processes taking place on the Polish labour market (coupled with a falling unemployment rate). The median of market expectations points towards maintaining a 4.5% employment increase (close to 9-year highs) and towards a 4.4% increase in the average wage, on a year-to-year basis. That’s less than in March (+5.2%), however, that would still constitute the biggest increase in the last six out of seven months. Readings close to the aforementioned consensus (or above) could support the Polish currency.

The US Department of Labour will share a report on initial jobless claims and insured unemployment for the ended week. Although the number of initial jobless claims was slightly better than expected in the last week’s report (236k) but it was the insured unemployment number that drew the most attention. It reached the lowest level since 5th November 1988 – it was also the fourth week in a row of readings below 2 million people. According to market expectations, initial jobless claims could go up by 4k and insured unemployment by 42k. However, this would still be close to recent records which could positively impact the dollar. The influence could be limited, though, as political tension in Washington currently dominates the market sentiment.