Daily analysis 17.01.2018

EUR/USD quotations close to yesterday's levels. Are the ECB members preparing the market for a dovish Central Bank message next week? The zloty remained stable. Today’s data from the Polish labour market with rather limited influence on the PLN.

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

• 2:00 p.m.: Change in average wage and employment rate in Poland (estimates for December: 7.4% YOY and 4.5% MOM respectively),
• 3:15 p.m.: Industrial production in the USA (estimates: 0.5% MOM).

Are the ECB members preparing the market for dovish message

Morning EUR/USD trading slightly below the 1.2250 level. The main currency pair pared yesterday's losses connected with German reports. Moreover, during the Asian session, the rate breached the 1.2300 level for a short period of time, which proves good sentiment towards the euro. However, it is possible that the situation next week may be totally different.

As we stated last week, the market has probably misinterpreted the minutes from the last ECB meeting. This is possible as the publication of ECB minutes only has a short history and market reactions are based on a short statement rather than whole documents. Moreover, the increased activity of ECB members over the past few days seems to prove this theory.

On Monday, the ECB member Francois Villeroy said in an interview for “Boersen-Zeitung" that the recent behaviour of currencies is a result of uncertainty and must be observed in the context of a possible downward pressure of import prices. In turn, today, Vitor Constancio (the Vice President of ECB) in response to a question asked in La Repubblica on the euro's strength, said that he was "concerned about sudden movements that do not reflect changes in the foundations", and added that "while looking at the foundations, inflation fell slightly in December".

The aforementioned statements can be explained by the fact that both Constancio and Villeroy are rather dovish representatives of the ECB. However, in the morning one more statement appeared on the market. Ewald New Austrian Member of the European Monetary Authority suggested observing euro quotations and stated that the recent increases in the single currency did not help. Nowotny is an example of a more hawkish member than Villeroy or Constancio (nevertheless unlike Weidmann). Although he stressed that the euro exchange rate is the ECB's goal, the latest statements made by the bank's representatives on the euro's value seems not to be a coincidence.

Next week, the ECB has its first meeting this year. It is possible that the monetary authorities even now are working on reducing the euro increases, and if this does not have the desired effect, Mario Draghi's press conference may be more dovish than it is valuated by the current market. This may be a good argument for a clear reduction in the EUR/USD increases observed since last Thursday.

Still small price increases in the eurozone

In the morning, Eurostat published December's final inflation data. Prices rose by 1.4% year-on-year in relation to the last month of 2016. In core terms, the increase was only 0.9% year-on-year, which shows exactly the same inflation level, excluding fuel and food, as the year before.

In turn, prices in the services sector rose at an even slower pace than a year ago. Currently, it is 1.2% year-on-year and in December 2016 it was 1.3% year-on-year. Moreover, this fact can also be easily used in next week's press conference by Mario Draghi after the ECB meeting.

Stable zloty

The zloty's quotations remained relatively stable, the EUR/PLN pair moved between 4.17-4.18. At night, the EUR/USD exchange rate breached the 1.2300 level for a moment, which caused the USD to fall in relation to the PLN against the new 3-year lows (3.39). However, this movement, with small liquidity at the time, should not be a reliable signal for further market behaviour.

If the ECB's message next week had been dovish (details in the previous paragraphs), the impact on the EUR/PLN pair would probably have been limited. More significant increases may be observed in the dollar. Probably, the franc and the pound valuation would also appreciate, as these currencies would be appreciated in relation to the euro.

When it comes to today's zloty quotations, they should not be volatile. In the afternoon, the Polish Central Statistical Office (GUS) will publish the data on wages and employment. Better readings may help the zloty, but it should not have a more significant impact on the PLN exchange rates.