Daily analysis 07.11.2017

The falls on the EUR/USD despite better than expected retail sales data in the eurozone. Dudley's speech without a breakthrough. Tomorrow's MPC meeting may attract a lot of market attention. Slightly higher volatility on the EUR/PLN pair, but in the morning the quotations return close to the 4.24 border.

The most important macro data (CET - Central European Time). Surveys of the macro data are based on the information from Bloomberg unless noted otherwise.

• No macro data that can clearly influence the analysed currency pairs.

The EUR/USD is depreciating

In the morning, the EUR/USD quotations were 30-40 pips below the 1.1600 boundary. It means lower levels of the main currency pair compared to Monday's trading session, as well as in relation to what we observed during Asian quotations.

On the one hand, the EUR/USD depreciation is caused by a slight weakening of the euro and on the other hand, by the dollar's appreciation. This is clearly seen on the EUR/CHF or the GBP/USD pair. Overall, however, over the recent hours, there has been a rather positive information from the eurozone, especially in the context of consumer demand.

Retail sales in the single currency area increased by 3.7% YOY in September. This is the third highest reading in 17 years. A very good result was also achieved by the key eurozone's countries. Retail sales' volume in both, France and Germany, rose by 4.6% YOY. Strong household demand, with relatively good investment pace, may prolong the better situation in the eurozone. It would also be a good news for Poland, although according to Eurostat data for September, retail sales for our country, compared to the good results in the leading EU countries, were not spectacular and amounted to +6.5%. (the weakest since June).

The EUR/USD depreciation is not caused by deeper changes on debt instrument market. The yields of German and the US' bonds appreciate somewhat but the difference between the is not increasing, therefore, the reaction on those currencies should be limited. In general, this move should not mean that a longer trend has been started if, of course, there are other factors that may prolong it.

Dudley's speech

Since the beginning of the week, attention has been drawing to William Dudley's earlier (about half a year) retirement. Weekend press speculation was confirmed by the New York's Federal Reserve yesterday. Moreover, Dudley, yesterday made a speech about the crisis, but it did not include references to current monetary policy or the economic situation in the US.

Slightly more views on the subject was expressed by Dudley during a series of questions and answers. Among other things, he said that he is surprised by the low inflation rate this year, but expects it to accelerate. A statement suggesting that inflation "could be slightly above 2%" in order to maintain its anchorage could have been perceived as dovish. In general, however, the statements of the New York Fed member did not differ significantly from his earlier opinions and due to the shortening of his term of office, his views will probably be less and less important for the market in the coming months.

A significant meeting of the Polish MPC

Around midday, the EUR/PLN quotations are close to the 4.24 boundary. Due to lower euro prices in relation to the franc or the dollar, we have to pay a little more for these currencies. Their rates are close to the limit of 3.66 PLN. With the absence of global impulses for PLN, however, tomorrow's MPC meeting may be important.

During November's meeting, members of the Council will already have new forecasts for the economy included in the Inflation Report at their disposal. It is possible that the acceleration of economic growth combined with a significant increase in commodities (industrial metals or oil increased from the middle of the year from 20% to 30%) and the pressure for higher wages (over 8% YOY in Q2 according to Eurostat data) will cause CPI estimates presented by the NBP to begin to exceed the MPC target of 2.5% over the next two years.

It may be a good time for the Council to start suggesting an increase in interest rates before the end of 2018. If this scenario happens to be true tomorrow, it is possible that the zloty would start to gain significantly in value, and the target for EUR/PLN could be up to 4.20. If the Polish MPC does not change its message from those of the last few months, the Polish currency could even somewhere in the area of the euro.