Euro may lose its upward trend (Daily analysis 4.08.2020)

Tuesday's quotations on the FX market are held in a calm mood. After strong fluctuations of the dollar recorded on Friday, the EUR/USD exchange rate rose above 1.19 and then ended the week at around 1.176. The situation was similar on Monday and today at midday the main currency pair is also quoted at 1.176-1.177.

On one side, good economic data and on the other side, a raging virus

No fundamental change is caused by the fact that the market now has another portion of extreme stimuli to survive. On the one hand, on Monday, the final PMI data on industrial activity in Europe turned out to be even higher than initial estimates. Industrial data from the US and Poland also came out better than expected.

The common problem remains lower employment, which currently supports and somewhat artificially expands government programmes. This may prove to be an important issue in the coming months, when many companies may face bankruptcy. Already today, more and more companies are going bankrupt. What happens next will depend on consumer demand in the coming months, which in turn will be influenced by a possible next wave of disease.

And this is another trigger that the market has to deal with now. Unfortunately, the number of cases is increasing, among others, in Germany and Poland, and yet it is summer, while a potentially stronger wave may occur in the autumn-winter period. In the Q3 we should still observe increases in activity of economies emerging from the closure, but it is most likely that Q4 will be the real test of consumer behaviour.

From this perspective, the data for July, although positive (in the case of Europe or parts of Asia), may quickly lose their significance, given what the market will face in the coming months, and it is worth adding to this the November US presidential election.

Till Friday will be calm but afterwards?

On Friday, investors will have an important publication of macroeconomic data. The July report on the US labour market will be published, and this publication may increase market volatility, showing the negative effects of reintroducing restrictions in some US cities and states.

Until then, we should not see any major changes in the main currency pairs. However, reports of growing daily infections in more European countries could potentially cool down demand for the euro a little while strengthening the dollar. This could also have a negative impact on the zloty, which is moving in a very limited fluctuation range. The zloty still remains in good shape given the past few weeks.

In the afternoon, the EUR/PLN exchange rate fluctuates around approx. 4.40-4.41, while USD/PLN is about 3.75, practically at yesterday's closing levels. After the session starts, the New York Stock Exchange will still publish US macro data on orders in industry and durable goods, but these data will be for June and should not affect the dollar.