ECB with small impact, euro weakens (Afternoon analysis 25.10.2018)

Mario Draghi's long-awaited press conference did not bring any relevant information. At the beginning of the US session, the dollar is growing in strength. The zloty remains unchanged but may come under pressure from the US currency, if it appreciates more quickly.

Now two-month lows recorded by EUR/USD pair

As expected, the European Central Bank (ECB) left interest rates unchanged. The only change, although planned, in today's ECB statement was the reduction in the asset purchase program from 30 billion EUR at the end of September to 15 billion one month before the end of this year. Mario Draghi, head of the ECB, repeated at a press conference that inflation growth remains subdued, although it is significantly higher than at the beginning of the year.

Draghi confirmed that macroeconomic data from the eurozone was slightly worse than expected and stressed that monetary policy would remain accommodative (mild) even after the end of the asset purchase program at the end of the year. As regards the development of future interest rates, the head of the ECB did not provide market participants with any new information that could change the probability of an increase in interest rates.

After the press conference, the euro started to depreciate. The euro against the dollar fell to the lowest level in two months (around 1.137). This was not a reaction to the words of the head of the ECB, but rather a continuation of the downward trend in the euro and, at the same time, the strengthening of the dollar that has been seen in recent weeks. In addition to this, there have been the recent sharp falls in the markets. Although the main indexes in the US opened much higher than yesterday's closing, some investors may be worried about continuing the sale off, thus the pressure to strengthen the dollar at the beginning of the trading session in the US.

As a result of these events, the zloty in relation to main currencies remained relatively stable today. In a broader perspective, however, the pressure on the zloty in recent weeks is likely to continue. The USD/PLN quotations exceeded 3.79 today. Maintaining the upward trend of the USD/PLN may result in the USD/PLN reaching new highs at a fast pace, close to a year and a half in the case of exceeding about 3.84.

The behaviour of the dollar may be determined by the fate of a stock exchange session in the USA. If we do not observe the return of current profits (at 4:00 p.m. Dow Jones gained about 1% and Nasdaq 2%) or even the reappearance of declines, the pressure on the dollar's value increase may be limited. Published today macroeconomic data from the USA was not positive. The deficit in foreign trade in goods increased in September to 76.04 billion USD, compared to expectations of 1 billion less. Although orders for durable goods (a good indicator of industrial production) increased in September by 0.8% per month (and a drop of 1.3% was expected), with the exception of highly volatile transport orders, they increased by only 0.1%, 0.4 percentage points below consensus.

Tomorrow's preview

The most important event planned for Friday will probably be the BEA publication of the US growth pace for the Q3 at 1:30 p.m. The market consensus assumes an annual growth rate of 3.3%, compared to 4.2% in the previous quarter. These data may be important as we can observe more and more signals from the eurozone that the pace of development is slowing down faster than expected.

If the BEA data indicates that the economy has grown above consensus, this may lead to increased pressure on the euro. Downward pressure on EUR/USD in such a scenario could also have a negative impact on the zloty, which is weakened by worse than expected macro data indicating that the economy could have developed more slowly in Q3 than expected.