Daily analysis 17.07.2017

Worse data from the US keeps pressure on the dollar. Speculations of athe possible modification to the statementof the comment by the European Central Bank (ECBBC) at Thursday's meeting. The zloty utilised the good global sentiment. EUR/PLN close to 4.20. Relatively hawkish comments from Mr. Zubelewicz.

Macro key data (CET time - Central-European). Estimates of macro data are based on information from Bloomberg unless they marked otherwise.

• There is no macro data that would clearly influence analyzed currency pairs.

US data does not support the dollar

Friday's release of the US macroeconomic data did not support the dollar. Almost all the readings were below market expectations (inflation, retail sales, consumer sentiment). At first sight, the publication of industrial output could be received positively, due to its increase by 0.4% M/M with a consensus of 0.3%.

The readings were slightly affected by significant increases in the miningextracting sector (1.6% M/M and 9.9% YOY). ManufacturingIndustrial production, which better shows the general condition of the economy as a whole, accounts for only 75% of the entire production index, increased only 0.2% M/M and 1.2% YOY (as expected). These values do not indicate a rapid economic growth.

After Friday's data, the Federal Reserve's GDPNow model from Atlanta has also been updated. Currently, it projects a change to second quarter GDP of + 2.4% (on a yearly basis). This is the lowest forecast in this prognostic series. As far back as the turn of May and June, the model pointed to + 4.0%.

Generally, neither the inflationary pressure nor the exceptionally good economic situation is shown in the US economy. If data from the US does not improve, the 2018 interest rate may indeed be under a big question mark. This fact may continue to maintain downward pressure on the dollar, especially if the prosperity outside of the US was relatively good.

More hawkish than dovish?

This week the most important event will be the European Central Bank (ECBEBC) meeting. Recent suggestions from the European monetary authority have made it clear that the period of extremely mild monetary policy may have slowly vanished. On the other hand, strong increases in the euro value may slightly hinder the ECB's willingness to bring inflation to its destination and maintain good economic conditions.

The key point of Thursday's meeting will be whether the central bank will remove the excerpt suggesting the possibility of further QE increase. In a survey conducted by Bloomberg, 47% of respondents said that this part of the message will be modified. It would be a hawkish signal from the ECB, and would additionally raise expectations of Mario Draghi's appearance at Jackson Hole, scheduled in late August.

More likely seems to be the scenario where this part of the message is left unaltered and suggest, for example, a discussion of the removal of this fragment during the conference. This would be a more neutral move that would reduce the upward pressure on the euro. This is why, in general, the message from the ECB could be received as dovish and as a good catalyst to the corrective weakening of the European currency.

Zloty was clearly stronger

The zloty and the forint were noticeably gaining value after the release of US data late last week. Polish and the Hungarian currency have strengthened against the dollar since the end of Thursday's session by 0.9 and 0.8 percent, respectively. As a result, the USD/PLN pair reached the lowest levels since September 2015.

One interesting aspect in the context of the zloty, though not quite with the influence on the current quotes, is today's Bloomberg interview with MPC’s member Kamil Zubelewicz. He said that we should have a "cautious" interest rate hike in 2017, and the inflation will reach its target faster than forecasts suggest. So far, Zubelewicz's views probably do not have much of a support in the MPC, but a broader discussion about the rate increases may help the zloty in the coming months.