Daily analysis 30.10.2017

Spain and rumours about the coming election of the Fed's President have clearly disturbed Friday's quotations. Inflation data from individual states suggests lower than expected readings from Germany. The zloty slightly appreciated. The EUR/PLN pair close to the 4.24 boundary.

Key macro data (CET time - Central European). Estimates of macro data are based on Bloomberg data unless otherwise noted.

• 1:30 p.m.: Americans' income and spending for September (estimates: 0.4% MOM and 0.9% MOM respectively),
• 1:30 p.m.: September's PCE inflation from the US (estimates: 0.4% MOM and 1.6% YOY; core inflation: 0.1% MOM and 1.3% MOM),
• 2:00 p.m.: Preliminary October's data on inflation from Germany (estimates: 0.1% MOM and 1.7% YOY).

Stoppage in dollar's appreciation

The EUR/USD quotations above 1.1600 are still due to events from the end of last week. On Friday afternoon, we had both the strengthening of the Barcelona-Madrid conflict and reports from leading news agencies in the US (Bloomberg, CNBC) that President Trump was moving towards Jerome Powell's appointment as Federal Reserve President.

For some time the market could not decide whether the sum of these reports was negative or positive for the main currency pair. However, in the following hours, it was clear that a strong decline in yields of the US government bond (around 5 basis points on 5-year government bonds) weakens the US currency, while the euro's depreciation associated with Spain is relatively small. As a result, the week ended above the 1.1600 level.

Relatively positive for the EUR/USD are also the first hours of Monday's session. The behaviour of Spanish government bonds does not indicate that investors will value further increases in concerns about Catalonia. In turn, yields in the US Treasury bonds have continued to decline further, which reduces the market probability of Fed's interest rates increases faster than expected.

However, it is also worth noting that ahead of us there are a lot of events, which can significantly disrupt the dollar or the EUR/USD quotations this week. In the US we have Fed's meeting, ISM index publication (service and industry), PCE inflation (today) or labour market data.

In the background, investors will also continue to speculate on the President Trump's election of the Fed's President (probably until Friday) and the tax system reform details' presentation (according to "The Wall Street Journal" on Wednesday). The coming days may be characterised by increased volatility, but due to the multiplicity of information, this may not necessarily lead to a specific trend being generated before the end of the week.

Inflation data from Germany and the US

Not only a whole week but also afternoon can be quite interesting. September's PCE inflation reading from the US will be published. This is the measure of price changes preferred by the Federal Reserve in macroeconomic forecasts. The most important reading will be the one excluding fuels and food (consensus 1.3% YOY). Even its slight growth (up to 1.4% YOY) should help the US dollar a little, given the low inflationary pressures in recent months.

At 2.00 p.m., preliminary data on inflation from Germany will be released (for October; 1.7% YOY consensus). However, given the readings already published from individual states, the general reading may be below consensus. Additionally, taking into account detailed data from the most populated land (Northern Rhine-Westphalia), the price base categories have noticeably slowed down in growth. In annual terms, clothing inflation declined from 2.2% to 0.6%, transport services from 3.0% to 1.9%, and leisure services from 1.8% to 1.0%. It is hard to say whether a similar trend will be seen throughout the country, but a strong slowdown in core inflation may even create small pressure on the single area currency.

The zloty slightly appreciated

The absence of more nervous reactions due to reports from Spain and a strong depreciation of yields of the US Treasury bonds are positive news for the zloty. Therefore, the EUR/PLN pair is slightly lower and its quotations are close to 4.24 level. The franc or the dollar are also slightly cheaper, by about 2 gr.

In the next few days, in addition to a rich global macroeconomic calendar, we also have readings from our country. Tomorrow's data on inflation in Poland should be important in the context of November's Polish MPC meeting, the NBP macroeconomic projections and the maintaining of the hawkish tone among some members of the Council. The PMI should have a smaller impact. The next hours should not give such strong impulses to clearly disrupt the Polish currency quotation.