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Dollar still strong (Afternoon analysis 28.11.2018)

28 Nov 2018 16:01|Bartosz Grejner

Uncertainty connected with trade keeps the US currency in good condition. In the afternoon, a speech by the Chief of the Federal Reserve that may increase the dollar's volatility. The zloty is stable in relation to the euro but is already depreciating against the dollar and the franc.

The EUR/USD still below 1.13

The market still focuses on the US-China trade dispute. As some media reported yesterday afternoon, a similar conflict between the USA and the EU may be re-opened (through the potential imposition of duties on cars imported from the EU, which would probably trigger a reaction on the part of the EU). The G20 summit scheduled for the weekend is probably to resolve these issues, so the biggest impact of this event will be known after it. Given the high degree of uncertainty and the multitude of different information flowing into the market on Friday, there may be significant market volatility. Some market participants may want to protect or close some positions before this weekend for worries about the difficulty of predicting the outcome of discussions.

The main currency pair, i.e. the EUR/USD, moved within a very limited fluctuation range until 3:00 p.m., at yesterday's closing level. However, the EUR/USD exchange rate was still below the 1.13 limit, falling to its lowest level in two weeks today. In the afternoon, macroeconomic data from the USA was published, which may not be entirely in favour of the dollar.

Although the second revision of the GDP growth pace in the Q3 was in line with preliminary data (an increase by 3.5% y/y), the contribution of consumer spending fell from 2.69 to 2.45 percentage points. At the same time, the negative contribution of net exports increased from 1.78 to 1.91 percentage points. The impact of stocks on GDP was also revised from 2.07 to 2.27 percentage points. The PCE price index in BEA publication dropped from 1.6 to 1.5%.

The final result of the economy remains very good and despite a slight " cracks" in the high GDP growth pace, the data had a limited impact on the dollar quotations. Apart from international trade and customs, the market may be more focused on the monetary policy of the Federal Reserve. Today's speech at 6:00 p.m. by Jerome Powell, Chairman of the Federal Reserve, may have a significant impact on the dollar's quotations.

Therefore, the zloty remains relatively stable. Its value against the euro still oscillates between 4.29 and 4.30 PLN. The situation is slightly different in relation to the dollar or the franc, which were quoted about 3.81 PLN today, although it results from the recently very good condition of the dollar and the franc on the global market. The zloty is mainly supported by good macroeconomic data from Poland. In the afternoon, potential fluctuations related mainly to Powell's appearance will have a rather limited impact on the zloty basket and the influence will be mainly visible on the USD/PLN pair and the CHF/PLN pair, if we observe a deterioration in sentiment on the equity market (which could strengthen the franc).

Tomorrow's preview

At 7:45 a.m., the Swiss Federal Statistical Office will publish data on Switzerland's GDP growth pace in Q3. The market consensus points to a decline in the rate to 2.9% per year (from 3.4% in the previous quarter) and 0.4% q/q (analogously from 0.7%). Better than expected data would not be a good signal for the euro or the zloty - the EUR/CHF pair fell to the lowest level since September 24th (about 1.127), and CHF/PLN is quoted at the upper limit since the same day (today the price rose above 3.81). In particular, an increase above 3.0% could significantly strengthen the franc against the euro or the zloty.

At 2:00 p.m., Destatis will present preliminary data on consumer inflation (CPI) in Germany in November. The median of market expectations suggests a reading of 2.4%. Lower than expected CPI of the largest European economy could mean that inflation data for the eurozone as a whole may also be lower than market expectations, which may exert a slight pressure on the euro.

At 2:30 p.m., will be published very important data - the Bureau of Economic Analysis (BEA) will publish PCE inflation data in October in the USA. Although this is the data for October (and we will soon see consumer inflation in November), this is the type of inflation taken into account by the Federal Reserve in its projections. The market consensus assumes that inflation without energy and food prices (core index) will be at the level of 1.9% y/y, compared to 2.0% a month ago. Around the publication time, the dollar's quotations may be subject to greater fluctuations. The US currency could gain significantly if it exceeded 2.0% by as much as 0.1 percentage points (this would be the highest reading in 6 years).

At 8:00 p.m., the Federal Reserve (Fed) will publish a record of the talks of the last meeting of the Monetary Committee. There were no changes in interest rates during this meeting, no new projections were presented and no press conference was held. In theory, the minutes should not have a significant impact on the quotations on the currency market. However, given that the statements of Richard Clarida (Vice-chairman of the Fed) are a little more hawkish than expected, the arrangement of information from recent days may be beneficial to the dollar. Especially if this inflation reading does not fail, and Powell's speeches today will also be received as hawkish.

28 Nov 2018 16:01|Bartosz Grejner

This commentary is not a recommendation within the meaning of Regulation of the Minister of Finance of 19 October 2005. It has been prepared for information purposes only and should not serve as a basis for making any investment decisions. Neither the author nor the publisher can be held liable for investment decisions made on the basis of information contained in this commentary. Copying or duplicating this report without acknowledgement of the source is prohibited.

See also:

28 Nov 2018 13:28

The uncertain outcome of G20 (Daily analysis 28.11.2018)

27 Nov 2018 15:31

Zloty in a favourable situation (afternoon analysis 27.11.2018)

27 Nov 2018 13:16

Trading riddle (Daily analysis 27.11.2018)

26 Nov 2018 16:18

Market sentiment improves (Afternoon analysis 26.11.2018)

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