Afternoon analysis 25.05.2017

While the American labour market continued to be in good condition in April, the trade in goods deficit was the largest since January. A still present positive sentiment towards emerging markets currencies has been supporting the Polish currency.

Mixed data coming from the US

The US Department of Labor once again showed a positive report concerning initial jobless claims and insured unemployment in the last ended week. Initial jobless claims were 234k and that was the fourth time in a row of readings below 240k and close to 44-years lows. The insured unemployment count was, in turn, below the 2 million level for the sixth week in a row. The data beat market consensus in both cases.

A less optimistic report came today from the Bureau of Economic Analysis (BEA) which said that the deficit in trade in goods widened in April to 67.5 billion USD and was the largest since January, in addition to being 3 billion higher than market expectations. A higher level of the deficit was caused by a drop in exports by 1.1 billion USD, while imports increased by 1.4 billion USD. A higher than expected trade deficit in the first month of the second quarter could cause that the negative contribution of net exports to the GDP in Q2 could result in a lower than expected GDP growth rate.

A mixed signal from today’s batch of US data had a limited impact on the dollar. After yesterday’s publication of the FOMC minutes that caused the dollar’s value to decrease, the US currency slightly gained today. The dollar’s index (DXY) increase from this mornings 96.8 to 97.1 pts around 3 p.m. The main currency pair, EUR/USD, reached a high today around 10.30 a.m. when it reached the 1.125 level. From that time on, the dollar has been gradually gaining in value – around 3 p.m. the EUR/USD dropped to 1.12.

Zloty still in good condition

The Polish currency remained close to yesterday’s settlement levels in relation to all major currencies. However, the FOMC meeting minutes published yesterday evening caused a drop in the dollar’s value which, in turn, gave a positive boost for zloty. The USD/PLN pair decreased during the Asian session to 3.71, deepening one-year lows. That was only 0,01 above the lowest level since October 2015.

Zloty has still been benefiting from a positive sentiment toward emerging markets currencies and even macroeconomic data from Poland have had a very limited impact on it. However, this could cause the Polish currency to be particularly sensitive should the sentiment deteriorate on the American or European markets. Such a scenario seems, however, limited for the time being – the situation in the eurozone stabilised both politically and economically.

Tomorrow’s preview

There two publications planned for tomorrow that could potentially impact dollar’s trading. The US Census Bureau will publish tomorrow at 2.30 p.m. April’s data regarding durable goods orders which could give insight into the level of industrial production. Orders rose in March by 0.7% month-over-month, below expectations of 1.2%. Excluding the relatively volatile transportation orders, the core index fell by 0.2% in the same time period. The market consensus points toward a decrease in durable goods orders by 1.2%, however, towards an increase of 0.5% in the case of the core index.

Bureau of Economic Analysis (BEA) will share the data regarding the GDP growth rate on the same hour. According to a preliminary reading, the US economy expanded by 0.7% in the first quarter compared to the previous quarter, some 0.5 percentage point below market expectations. This was also the slowest rate of expansion in a year. The median of market estimates suggests that the second BEA reading will show a 0.9% rate of expansion. Taking into account the dollar’s recent slump, a deviation from the market consensus (especially over 0.3 pp in the case of GDP) could increase the level of volatility on the dollar.