Afternoon analysis 26.06.2017

Worse than expected core durable orders data weakened the dollar. Favourable conditions supported the Polish currency – EUR/PLN at the lowest level in a week.

Another bad reading from the US

The dollar had slightly gained since the morning: the EUR/USD pair fell below 1.12 to approx. 1.117. However, at 2.30 p.m., the Census Bureau published data regarding core durable goods orders that missed the market’s expectations. Orders were lower in June by 1.1% compared to May, while a 0.6% decline was expected, and that was also the worst monthly decrease since November. Moreover, the core index (excl. transportation orders) fell short of consensus (0.1% vs. expectations of 0.5% month-over-month).

The publication caused a sudden increase in EUR/USD to 1.1220 – the highest level seen in 11 days. As a result, the dollar’s index (DXY) fell below 97 pts. The US currency has been supported by a relatively hawkish view of most of the Federal Reserve members who believe in a positive influence of the tightening in labour on inflation.

However, the recent data add a mixed picture of feelings regarding the condition of the world’s biggest economy and as long as we won’t see solid average earnings and inflation readings, the dollar will probably remain under pressure.

Zloty in better shape

The Polish currency was visibly stronger today since early morning. The EUR/PLN pair was above 4.22 only at 8 a.m., however, it fell to 4.205 a few hours later – which was the lowest level in a week. The zloty behaved in a similar fashion in relation to the euro, the Swiss franc and the pound. With regards to the Hungarian forint, to which the zloty is often compared, the Polish currency was the most expensive against it for two weeks.

There were probably several factors that contributed to a better condition of the zloty. First of all, the market sentiment on the European markets has remained positive – the main indexes rose approx. 1%. The positive moods were further affirmed by a strong Ifo business sentiment reading which rose to the highest level since German Reunification. Additionally, stable oil prices and a weaker dollar could also contribute to the zloty maintaining the currently seen positive trend.

Tomorrow’s preview

Mario Draghi, the president of the European Central Bank, will speak tomorrow at 10 a.m. This will be an introductory speech to the European forum regarding central banking. Although we shouldn’t expect new information regarding the tightening of the monetary policy by the ECB, the euro could be more volatile, especially should Draghi relate to inflation in the eurozone.

Yesterday’s calendar for planned macroeconomic publications is relatively limited. At 12 p.m., CBI will publish the distributive trade survey results in June. The general market consensus is that the retail sales level remained the same as in May (balance of +2%) – meaning that the percentage of companies reporting an increase minus the percentage of companies reporting a decrease will give a balance of +2%. The pound has been mostly influenced by political factors of late (internal affairs as well as Brexit matters), hence the impact of this data will probably be limited.

Conference Board (CB) will publish at 4 p.m. the June’s level of the consumer confidence index in the US. A similar index by the University of Michigan pointed towards slightly worse sentiment in June – it showed a drop from 97.1 pts to 94.5 pts. Consequently, it's quite probable that the CB index will fall as well – the median of expectations suggest a reading of 116 pts, 1.9 pts lower than in May. This data has been rather second-tier to the dollar, although a higher than expected decrease in the index could put additional pressure on the weakened US currency.