Calm Friday (Daily analysis 18.10.2019)

Though China's GDP growth pace was slightly below expectations, Friday's quotations were relatively calm. The dollar continues to depreciate gradually, which in turn increases the EUR/USD exchange rate to around 1.1150, the highest level of almost two months.

Pressure on the dollar still present

Given the Thursday events, Friday's quotations were incredibly calm. The main stock indexes were close to yesterday's closing levels. There were no major changes in the currencies either, although the dollar continues to weaken. The dollar index (DXY), which measures its strength against six major currencies, fell to its lowest level since mid-August (approx. 97.17 points). In turn, the EUR/USD exchange rate moved closer to 1.1150, also setting new highs since August.

The dollar's weakness, despite the positive sentiment associated with the US trade negotiations with China, is also affected by the slightly weaker than expected macro data received from the US economy in the last few days (retail sales, industrial production). On the other hand, the euro was supported by better than expected eurozone current account data for August. The surplus (seasonally-adjusted) amounted to 25.7 billion EUR, 8 billion more than expected, moreover, data for July were revised upward by 1.6 billion EUR.

Saturday's vote in the British Parliament is an event that the market is waiting for. It is extremely difficult, practically impossible, to predict the outcome of the vote. Therefore, today's relatively calm quotations observed on the pound. Until the beginning of the trading session on the New York stock exchange, the GBP/USD exchange rate was in the range of 1.2840-1.2920. This is a very narrow range for the British currency. However, it is possible to extend it later in the day.

Today, the market did not seem to be too concerned with the slightly worse than expected reading of China's GDP growth pace in Q3. It was only 0.1 percentage point slower than consensus, but the reading at a level of 6.0% year-on-year was the slowest in over two decades. The zloty is clearly supported by the lack of deterioration in market sentiment, which allows the EUR/PLN and USD/PLN pairs to be quoted at over two-month lows of 4.28 and 3.84, respectively. The GBP/PLN pair moved today between 4.9450 and 4.9170 PLN, but given the uncertainty surrounding Saturday's voting, on Monday fluctuations in the pound's value are expected to reach 0.15-0.20 PLN.

Next week's preview

Brexit will be the most pressing issue on Monday. The uncertainty about the outcome of the vote in the British Parliament on Saturday means that investors can be nervous when trading starts again. Therefore, substantial fluctuations of the pound can be observed.

Apart from the reports concerning Brexit and trade war (China-US negotiations), the most significant event for the market next week will probably be the preliminary PMI data on the eurozone, which will be published on Thursday morning. The recent data failed the expectations, especially in the industrial sector. The index for Germany fell to its lowest level in a decade. The industry has been the main problem so far — the service sector has remained relatively stable, although this index clearly deteriorated in September. The aforementioned publications may, therefore, cause an increase in market volatility and a change in sentiment if they differ significantly from the consensus.

On Friday, the sentiment indexes of the German economy will be published. The GfK will present consumer climate index, and the Ifo will publish business climate index. They may have an impact on the market if they coincide with the previously published PMI. In such a scenario, it could reinforce the direction of the previous day's movement.