Limited changes for euro and dollar (Afternoon analysis 5.12.2018)

Neutral session for the euro. Positive PMI was overshadowed by weaker than expected retail sales. Slight fluctuations observed in the EUR/USD pair support the maintenance of current PLN levels. However, the press conference of the Monetary Policy Council (scheduled for 4:00 p.m.), may weaken the Polish currency a little.

Will dollar appreciate?

Significant day-to-day changes in the equity and bond market have a very limited impact on the currency market. The main currency pair, i.e. the euro/dollar, was only marginally above yesterday's level (just after 3:00 p.m., about 1.1340), and the range in which the rate moved was also very limited.

Today's data was mixed for the euro. PMI activity index of the service sectors for Spain and Italy exceeded the market expectations. The second aggregate readings of these indexes for France, Germany and the eurozone as a whole were also better than the consensus. On the other hand, retail sales in October in the single currency area increased by 1.7% per year, 0.4 percentage points below expectations. September sales increase was also revised from 0.8% to 0.3%.

As a result, the impact on the euro was neutral. The end of the week, however, is full of macroeconomic publications from the US, including Friday's report on the US labour market. If the data is positive for the dollar, it may once again clearly appreciate at the expense of the euro, especially after yesterday's hawkish speech by John Williams, Chairman of the Federal Reserve in New York.

Practically no changes in the EUR/USD pair also translated into calm zloty quotations. The current EUR/USD exchange rate fluctuated between 4.28-4.29 PLN, and to the dollar and the franc around 3.78 PLN. If we do not observe significant fluctuations in the euro-dollar quotation, this situation should support the zloty in relation to the main currencies.

The press conference of the Monetary Policy Council is still a certain risk factor. Inflationary pressure in November turned out to be clearly below expectations and there may appear more dovish statements that could slightly harm the zloty. Clear declarations on the future level of interest rates are not expected; therefore the impact of today's conference is likely to be limited.

Tomorrow's preview

At 2:15 p.m., ADP will publish data on changes in employment in the non-farm sector in the USA in November. The market consensus indicates an increase of 195,000 (compared to 227,000 a month ago). It is likely that only a reading beyond the 160,000-250,000 range would be able to trigger some kind of greater reaction from the dollar. The data gives an overview to investors about employment changes, but it is not always perfectly correlated with the official data from the Department of Labor, which will be announced on Friday.

At 2:30 p.m., a set of further US productivity data for the non-farm sector and unit labour costs in Q3, as well as a trade balance in October, will be published. The median of market expectations is respectively: 2.3 and 1.2 per cent q/q and a deficit of 55 billion USD. The data may give a slight impulse to increase the fluctuation range of the dollar, although ultimately the next publication may have a greater impact.

At 4:00 p.m., ISM will present a report on November service sector PMI level in the US. An analogous index for the industrial sector has far exceeded market expectations. The current consensus for services assumes a slight decrease in PMI to 59.2 points (by 1.1 points compared to October). Another good publication from ISM could strengthen the US currency, which is currently within a very limited fluctuation range, even though equity and bond market movements are significant.