Optimism on the market weakens the dollar (Daily analysis 6.07.2020)

Hopes associated with increased economic activity strengthen the euro and reduce demand for the dollar: the EUR/USD exceeds 1.13, and it is the highest for two weeks. The zloty remains within a limited fluctuation range.

The new week on the financial market started with data showing a slightly worse-than-expected negative impact of the virus on the industrial sector in Spain and Germany. Industrial production increased by 14.7% on a monthly basis and orders in German industry by 10.4%. Both were below expectations, and both revised the April data downwards.

The prevailing optimism on the market goes beyond the pandemic period and investors expect a relatively rapid increase in activity as well as further support from central banks and governments. However, industry data may indicate that economies are starting the recovery from a lower point than expected, which in turn may extend the path somewhat.

In May, Europeans were buying shoes and clothes

Data on retail sales in the eurozone for May were a positive aspect. According to Eurostat, it increased by 17.8% on a monthly basis, 2.8% above expectations. Although it is still clearly lower than a year ago (by 5.1%), the growth of retail sales above consensus in May may slightly strengthen optimism, as it indicates slightly higher consumer demand.

However, it was clear that the lifting of the restrictions would be followed by a very clear rebound in this area. And this is evident in the distribution of retail sales: in May, the sales of clothing and footwear clearly increased the most in the eurozone - by 147% compared to April, with fuel sales at petrol stations increasing by 38.4%. In the following months, however, the growth path will be flattened.

Pressure off the zloty

The market continues to focus on the positive aspects of the recovery, ignoring some of the worrying data on the increase in the disease, including in some US states. A positive sentiment prevailed in the broader market today, which weakened the dollar. The EUR/USD quotations increased over the 1.13 boundary in the early afternoon to about 1.1330, i.e. to the highest level in two weeks and close to the upper limit of quotations for a month.

The supply pressure on the dollar took the pressure off emerging country currencies (EM), including the zloty. As in recent weeks, the basket of the Polish currency has not seen fundamental changes in relation to the dollar, the euro, the franc or the pound. With the weaker dollar, the USD/PLN exchange rate moved to 3.94 from 3.97 in the morning, and the EUR/PLN was moving just below the limit 4.47 in the early afternoon. The calendar of planned significant events in the further part of the day is practically empty, which is why the zloty should oscillate around current levels until the end of the day.