Fatal data, weaker zloty (Afternoon analysis 8.01.2019)

The market is more focused on US trade talks with China than on the problem of German industry. The zloty remains under pressure, although changes up to the beginning of the session on the New York market were not significant.

Trump confirms the positive reports

The data published today from the German industry caught attention as it was the worst in 2009. - the annual decline in production was 4.7%. During the day, Bloomberg reported that the Bundesbank stated in an email that it would keep an eye on these changes. However, the reaction of the broader market was very limited, if not minimal.

The EUR/USD quotations practically did not react. The main pair's exchange rate has been moving within a limited range of about 1.143-1.147 from the start of trading on European markets. The EUR/USD quotation spread during the Asian session (a decline from 1.149 to 1.143), although we did not have such important publications at that time (as those from Germany).

The equity market, in turn, reacted clearly, but with increases. The main market indexes in Europe grew (over 1 per cent around 3:00 p.m.), as well as futures contracts for the US counterparts. The source of this enthusiasm is the prospect of improving trade relations between the USA and China. Bloomberg already reported positive information about the first round of talks this year today, which was also confirmed by US President Donald Trump on Twitter, saying that talks with China are going very well.

As a result, the continued pressure on the dollar and the prospect of improving trade relations between the USA and China (a positive factor for the German economy) slightly masked the weak data from Europe's largest economy.

However, this much worse than expected data from Germany affected the zloty somewhat, due to the strong trade ties (both in terms of imports and exports) of Poland. The zloty was weaker in relation to all basic currencies during most of the European session. However, these changes were limited and were within the range of the last 8 days, although in the case of the relation to the franc, the pound and the euro - close to their upper limits.

Germany's problems are not a good set of news for the zloty. The calendar of scheduled events for today is empty, so in the context of the zloty basket, the behaviour of the euro-dollar quotations will be important. From around midday (CET) we could observe a gradual weakening of the euro in favour of the dollar. If the dollar appreciation continues also in the evening, supply pressure on the zloty may also increase.

Tomorrow's preview

On Tuesday at 4:00 p.m., a statement of the Monetary Policy Council (MPC) will be published - however, interest rates will not change. A press conference of the Monetary Policy Council (MPC) will also start at the same time. It will probably have a limited impact on the zloty's quotations. The Council's dovish attitude to monetary policy should not change, especially as the incoming macroeconomic data from Poland and abroad does not contain arguments to change this position.

The latest dollar depreciation is a result of the market's conviction that the Federal Reserve's approach to monetary policy is milder than previously expected. This may have been suggested by recent statements by Jerome Powell and Loretta Mester, among others. Therefore, tomorrow's record of talks from the last meeting of the Monetary Committee (FOMC), which will be published at 8:00 p.m., may be interesting in this respect. If it turns out that market expectations are confirmed (i.e. there was a discussion about a potentially bigger than expected economic slowdown) or there are statements suggesting that there is no need for a rapid monetary tightening, the dollar may be under additional supply pressure.