Good sentiment persists on the market (Afternoon analysis 10.07.2018)

The dollar strengthens but the market sentiment maintains positive. The dollar appreciates after weak data from Europe. The zloty remains stable but the probability that it will continue to grow is much lower than the probability that it will return to the path of weakening.

The EUR/USD falls near 1.17

Today, for the next time in a row, the trading session was accompanied by a slightly better sentiment on the market. After yesterday's growth on the US market, the Asian counterparts also grew at night. The increases were also reflected in European markets, which were also above in green around 3:00 p.m. This good sentiment was probably due to the lack of new negative information on customs issues, which could escalate the conflict between the US, China and the EU.

European data is unlikely to support the overall market sentiment. In May, industrial production in both France and Great Britain failed to meet market expectations, as did the sentiment index of the ZEW Institute, which reached its lowest level in 6 years for the eurozone and Germany. Such a poor result was caused by concerns about international trade.

This is one of the factors which caused the EUR/USD exchange rate to fall below the 1.17 level and oscillate around this limit at about 3:00 p.m. The dollar strengthening and the EUR/USD exchange rate drop initially also led to a significant zloty weakening. The euro rose to nearly 4.34 PLN in the morning, although it was still 0.03 PLN lower at 9:00 a.m. In the following hours, the EUR/PLN returned to the 4.32 PLN, approaching the level of yesterday's closure.

The calendar of upcoming events is practically empty, so the market sentiment may depend to a large extent on what is going to happen on the US market. The growth of the main indexes in the US may support the good sentiment and relatively high valuation of the zloty. However, fears of international trade are likely to return and, combined with relatively weak foundations (lack of prospects for interest rate increases in Poland, weaker growth pace in the region), may contribute to the weakening of the zloty in the long run and to the fact that the recent highs will be exceeded.

Tomorrow's preview

After the two-day meeting of the Polish Monetary Policy Council (MPC), the decisions concerning interest rates in Poland will be announced, in relation to which, however, no change is expected. So far, the monetary policy statement from the MPC has been very accommodative - any increase in interest rates before the ECB movement seems to be unlikely. This was suggested by the Council members themselves and even 2020 was mentioned by its Chairman. In theory, a press release and a statement could have a slightly greater impact on the zloty's quotations, although it is also hard to assume that the MPC's position will change since the last meeting. The market, apart from the fears of a customs war (unfavourable for the zloty), did not market any significant changes. As a result, the final impact of tomorrow's MPC statement and conference on the zloty should be limited.