A multi-stepped reaction on the dollar after the US labour market data. Clearly weaker production readings from Germany. The zloty has remained relatively stable, despite the fact that the morning for the domestic currency has been slightly stronger. The EUR/PLN and the USD/PLN pairs have been around 4.25 and 3.60 respectively.
Macro key data (CET time- Central-European). Estimates of macro data are based on Bloomberg information unless marked otherwise.
- No macro data that could influence the analysed currency pairs.
An overdue reaction and later overreaction
Friday's session on Forex was very interesting. After 2:30 pm, data from the US labour market has been flowing. Readings from both, the household and business examination, have been good. The number of new jobs positions has exceeded to over 200 k in July, the unemployment rate has also fallen, and the rate of job participation has increased, which means that inactive Americans have returned to the labour market.
Higher than consensus have been wages (2.5% YOY vs 2.4% YOY), which has been a key element of the report. For the first minutes, the reaction on the EUR/USD pair has been very limited. The falls have been within the range of 30 pips, and the main currency pair has been trading near 1.1840 boundary.
However, the situation has changed about an hour after the publication of the Labor Department report. The EUR/USD pair has significantly accelerated and after several minutes the main currency pair has ended another 100 pips lower. The stronger dollar and clearly weaker euro pushed the EUR/CHF from around 1.1520 to 1.1420.
However, it is worth noting, that this reaction has not been confirmed by the US debt instruments. Growths, at around 3-4 core points for 5 or 10-year yields, has just come after the publication of the report, but afterwards, they have not been clearly deepened. In Germany, there have not been noticed drops in yields of debt instruments. As a result, it was possible to suppose that the reaction on currencies, which has been subdued at first, has been overestimating the early reports of US reports in the early evening.
Probably, the market has also begun to wonder if single data from the US, though important and good, may outshine the recent mixed US readings. Next hours and today's Asian session have passed on the slow rise of the EUR/USD pair and on Monday, before midday, the main currency pair has been around 1.1800.
This afternoon (4:45) and the evening (7.25), James Bullard and Neel Kashkari are scheduled to give a speech. Although both of them, are likely to be devoted to the monetary policy issues, it is quite unlikely that they would change the overall picture of the market. Bullard is the most dovish member of the FOMC and has recently spoken about the interest rates. Chances are small for investors to respond to his comments. Kashkari has been probably the second (after Bullard) Fed representative with a mild approach to the monetary policy. Therefore, their both views have been far from the consensus that they will not have a significant influence on the assessment of the overall monetary situation. Hence, they should also be neutral for the USD.
Worse data from Germany
We have been accustomed to good macroeconomic data from our Western border. This time, however, June's manufacturing production from Germany has clearly failed. It has increased by 2.4% in YOY (levelled out by the number of working days) while it has been expected to be at 3.7% level.
Today's publication from Germany has been the weakest since March 2017. Generally, it is too early to speculate about the downturn possibility, however, further weak readings may the beginning of the verification of an optimistic approach for the second half of the year.
The return of zloty to around 4.25 per the euro
The domestic currency has relatively calmly reacted to the strong EUR/USD changes. Sometimes, the zloty has even gained to the common currency or fointa. However, the zloty has returned to the fluctuations' range in which it lasted since the end of last month. The EUR/PLN pair has been again close to 4.25 boundary.
The next hour should not bring sharp movements on the PLN. The macroeconomic calendar is empty but scheduled to afternoon the FOMC members' speeches are likely to be relatively neutral for the dollar. As a result, around 4.25 zł for the euro, 3.70 for the franc or 4.70 for the pound may be maintained until the end of the day.