Afternoon analysis 28.12.2017

Worse than expected initial jobless claims as well as trade deficit data could exert further pressure on the dollar. The Zloty gained in relation to major currencies and the regional forint.

The dollar sinks lower

The main currency pair, EUR/USD, rose to 1.195 today, which was just shy of three-month highs as well as the highest level seen in a month. The period between Christmas and New Year’s Eve has a very limited number of publications that are of any significant importance. However, today’s data could put the US currency under additional pressure in the coming trading hours.

The weekly report from the Department of Labor once again failed to meet market expectations. Initial jobless claims amounted to 245k (same as last week) and were 5k above the consensus. The insured unemployment also rose to 1.943 million people, while a reading that was smaller by 43k was expected.

The data on trade goods balance didn’t satisfy market expectations either – the seasonally adjusted deficit increased to 69.68 billion USD in November and was the second highest in the last 9 years (expectations were 2.1 billion lower). November export grew by nearly 4 billion USD in relation to the previous month and 12.5 billion compared to November 2016. The unexpected increase in the deficit was brought about by the quicker increase in imports which went up by 5.5 billion USD on a monthly basis and 16.5 billion yearly.

After both publications at 2:30 p.m., the dollar returned to session highs on the EUR/USD (1.195), while the dollar index (DXY) returned to three-month lows at 92.3 points. Although Chicago manufacturing PMI will be published at 3:45 p.m., likely it will only have a limited effect on the dollar and the aforementioned data will exert the negative pressure on the US currency.

The zloty visibly stronger

A continuation of the dollar’s weakness at the end of the current year in the context of a fast pace of economic growth both in Poland and in the region is good news for the zloty. Today, the USD/PLN wasn’t the only pair that gained as the entire PLN basket did as well. The EUR/PLN pair tested the 4.18 level, the lowest level in half a year. The zloty was also stronger to the regional forint – PLN/HUF gained approx. 0.3% around 3 p.m., which could mean higher demand for the PLN.

The USD/PLN pair, on the other hand, fell 0.7% at the same time and tested the 3.50 level. The last time that the value of the dollar in relation to the zloty was at the same low level was three years ago. After the worse than expected data from the US, the probability of the US currency significantly gaining today is limited. If there aren’t going to be any major changes during the US session in both the shares and bonds markets, the zloty should stabilise around the current level or even gain slightly.

Tomorrow’s preview

Destatis will share preliminary data on Germany’s December consumer inflation (CPI). The market consensus points toward a reading of 1.5% year-on-year and 0.4% month-on-month. Inflation likely fell from the November level of 1.8% due to a relatively higher base in December of last year (1.7%).

On the other hand, a reading above 1.5% could increase the probability of higher inflation in the euro area as well. As a result, the euro could strengthen and the dollar could see further pressure (due to gains in the EUR/USD pair).

Five hours later, Baker Hughes plans to publish weekly data on the oil rig count in the US. Its growth halted in August when it peaked at 768 – the highest number since April 2015. The last five weeks saw readings in a narrow range, between 747 and 751 (last two: both 747).

The data, however, lags in relation to price changes as the recent increases in price as well as record US oil production suggest that the number of active oil rigs could start to increase again. Taking into account the recent spike in oil prices at their highest level since 2015 as well as their nervous reaction to new market information, we could still see significant changes to oil prices in the last days of trading in 2017.

Should the number of active rigs significantly increase above the aforementioned range and become close to the August level, we could see downward pressure on oil prices. The weekly petroleum status report on the market in the US from the EIA could also prove key to oil price movements. If the production in the US increased even higher and the oil and product inventories disappoint market expectations, oil prices could retract some of their recent rapid gains. This could not only influence currencies of countries dependent on oil export but also contribute to a deterioration of the market sentiment, increasing risk aversion.