Daily analysis 12.01.2018

The EUR/USD appreciated due to information on the increasing probability of creating a government in Germany, the main pair amounted to the highest level since 2014. Morning news from Germany is in line with the appearance of the Fed’s William Dudley. The zloty benefited from positive sentiment. The dollar tested recent lows.

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

• 2:30 p.m.: December's consumer inflation (CPI) from the US (estimates: 0.1% MOM and 2.1% YOY; excluding fuel and food 0.2% MOM and 1.7% YOY),
• 2:30 p.m.: Retail sales in the USA for December (estimates: 0.5% MOM and 0.4% excluding cars and fuel).

EUR/USD at new 3-year highs

Throughout yesterday, a lot happened on the market. The first wave of EUR/USD increases took place after Thursday's publication of the minutes from December's ECB meeting as well as data that is below expectations on US production inflation. The second wave was observed at today's opening of the European session. The main currency pair (EUR/USD) increased by 1.5% in two movements thusly exceeding the 1.2100 level. These are the highest levels since the end of 2014.

This movement scale and its direction may be slightly surprising. First of all, the growth catalyst in the case of the perception of December's minutes from the ECB is unlikely to be translated into the Bank's statement. However, there are fewer dovish statements than there were in October, but then again, change in the monetary policy was observed and was broadly discussed in order to avoid the impression of tightening the monetary policy more quickly than expected.

New macroeconomic forecasts appeared in December, which required a broader discussion of the current (and better) economic situation. However, there was no need to explain the modification of QE tapering. Perhaps yesterday's message was taken as hawkish, although none of the key parameters of the monetary policy were questioned by members and there was no suggestion of modifying it quickly. Therefore, the minutes were more dovish than the past statements of certain ECB representatives. On December 30th, Coeure claimed, in an interview with Caixin, that October's QE extension could be the last. The day before (29th December), Mersch warned against a slow exit from a really accommodative monetary policy.

The appreciation of the EUR/USD above 1.20 was extended by the lower than expected US production data, increasing the chances that today's consumer inflation data (CPI) will be in line with the consensus. Therefore, it will not depreciate the dollar.

William Dudley's hawkish speech did not disturb the upward EUR/USD sentiment. New York's President of the Federal Reserve pointed to the risk of overheating the US economy, especially in the context of the fiscal stimulus. The effects from this factor will be visible for the current as well as the following year. That being said, neither the bond market nor the currencies reacted much to Dudley's speech.

In turn, while the European session began, information was received on a breakthrough in the formation of a large coalition in the German government (CDU/CSU + SPD). Although this type of scenario has been expected, the end of several weeks worth of talks between the main German parties may reduce political risks before Italian elections.

The Wall Street Journal, which is familiar with the coalition agreement draft, published that an increase in expenditures by about 46 billion EUR is expected (approx. 1.5% of GDP) and this amount is to be spent on investments, social objectives or tax cuts. Fiscal stimulation from Germany, where a surplus of 1.2 percentage points of GDP was recorded in the public finance sector last year is good news for the eurozone as a whole and for the currency itself. Therefore, to some extent, today's increase in EUR/USD can be justified.

Stabilisation on the zloty. Inflation data from the US

On one hand, the Polish currency has been relatively calm in the case of increases in the EUR/USD pair. The valuation of the zloty compared to the euro remained close to 4.17. On the other, the euro's appreciation in relation to the dollar, the franc or the pound made the US, Swiss and British currencies cheaper in relation to the zloty. The USD/PLN once again tested three-year lows that were close to 3.43 and the CHF/PLN is only 0.5% above recent lows.

In the context of the next few hours, it seemed that today's inflation data from the USA would be crucial. However, taking into account the sentiment on the EUR/USD pair (the ECB’s reaction, the lack of a reaction to Dudley's speech as well as reports from Germany), the US CPI for December in core terms would have to significantly exceed the economic consensus at the 1.7% YOY level. The value of 1.9% year-on-year seems to be the only way to increase market uncertainty. Therefore, this will strengthen the dollar and weaken the zloty. In general, the core scenario that the high euro's valuation against the dollar will remain unchanged continues, and so does the good condition of the zloty.