Not enough significant impulses (Daily analysis 18.02.2019)

Trading on the currency market is accompanied by many impulses, but none of them is strong enough to strengthen the dollar to the new multi-month highs. None of them gives a chance to pare the losses by the euro. The zloty remains weak, but the risk of further significant depreciation is rather limited.

The most important macro data (CET - Central European Time). Surveys of macro data are based on information from Bloomberg unless noted otherwise.

• A lack of macro data may noticeably impact the analyzed currency pairs.

Plenty of variables, but none of them dominates

Last week, the EUR/USD exchange rate managed to defend itself against entering the new multi-month lows. The main currency pair was supported by the dollar weakening, which was largely caused by surprisingly weak data from the US economy (sales and industrial production for December failed).

In turn, there have been no new negative reports from the eurozone. Problems in Spain (early elections) or Italy (dispute within the coalition) have been known for several days. The weak economic situation is also already included in the current euro valuation. A possible element of uncertainty may be the monetary policy in the eurozone and a potential change in the bank's attitude in the context of expected rate hikes. However, this decision does not seem to be taken at the March meeting of the ECB.

Part of the threat may be the risk of introducing duties on cars imported by the US from the EU. This issue has reappeared in reports from the US over the last few days, but it seems that the likelihood of these risks becoming a reality is limited. The EU is trying to build energy relations with the US in order to gain a strong argument against trade restrictions on EU cars and parts. The EU has already been struggling with problems in the automotive sector, so customs duties could further worsen the European industry's results, and the slowdown in GDP growth could be even more pronounced this year than expected by the European Commission (1.3% growth). Brussels will probably do everything it can to reduce the risk of customs duties, especially as the EP elections at the end of May are also at stake. This would be a reputational catastrophe for the EU officials in power.

Moreover, Brexit cannot be omitted as well. Although it is more important for the United Kingdom than for the EU, it also affects the euro. Destabilisation due to the chaotic exit of the UK from EU structures would, however, also damage the euro. Currently, the market does not assume a negative scenario, so it seems that this impact on the euro is not so important at the moment.

As a result, the euro may still be under pressure, although as the problems of the single currency area are already included in prices, depreciation in the main currency pair should not mean that it will reach new multi-month lows. In addition, a deterioration in macro readings from the US does not support the dollar's appreciation, which is also likely to prevent the main currency pair from losing its value.

Zloty is weak but stable

The Polish currency remains weak in relation to the currencies of developed countries or those of Poland's region. Against the forint, the zloty is close to annual lows, and in relation to the Czech koruna, it falls to 7-year lows. The main reason for the zloty's weakness are the problems of the eurozone, but also the lack of opportunities for the Monetary Policy Council to tighten the monetary policy.

It is likely that the pressure on the zloty should not increase. On the global market, the dollar is weakening slightly, and the Polish currency has recently been heavily depreciated, and these levels may be attractive for some investors. Data from the Polish economy will be extremely important this week. Usually, the market ignores data on retail sales or industrial production, but given the slowdown at the end of last year, it will be important whether the data for January show a rebound. If the optimistic option dominates, then the zloty may even strengthen, reducing the recent weakening.