Surprising data from the eurozone weaken the dollar (Daily analysis 23.06.2020)

June's PMI indexes from the eurozone support positive market sentiment. Companies are optimistic about the future. The dollar is depreciating, supporting, among others, the zloty.

US-China agreement - is it still on?

There have been many emotions in the market for several hours. During the Asian session, Peter Navarro, one of the White House's chief negotiators, suggested the end of the US trade agreement with China in a TV interview for Fox News.

This scared market participants and increased risk aversion. However, a little later, President Donald Trump ensured on Twitter that the agreement was still valid. Navarro himself also said that his statement was taken out of context.

However, this shows that the market is still sensitive to information about the US-China agreement. The topic may become more important as the US elections in November approach.

Currently, the market is much more focused on recovery from closure and the associated increase in activity. Today, data from this front exceeded expectations.

France as leader of the eurozone

In the morning, IHS Markit published preliminary readings on the PMI indexes of the industrial and services sectors for the eurozone in June. Both sectors are still in recession (below 50 pts.), but the indexes at 46.9 pts. and 47.3 pts. were 1.9 and 5.8 pts. above expectations, respectively.

Compared to the largest economies, France stood out particularly well with indexes for industry at 52.1 points and for services at 50.3 points. Not only did these values significantly exceed expectations (by 5-6 points), but they came out of recession. The increase in activity in the French industry proved to be the strongest since February 2018.

Since February, such optimism has not been seen

Among the few components which continued to record declines were new orders and export orders reflecting subdued demand, but there was also a positive element. The mentioned orders recorded the smallest drops since the introduction of the restrictions in March.

Eurozone companies' confidence as regards the future prospects for the coming year has increased to its highest level since February. Although the data are optimistic, demand is likely to remain subdued, and the following months may no longer abound in such significant increases.

The EUR/USD with the highest exchange rate since a week

Strong data from the euro area reinforced the prevailing optimism in the market, weakening the dollar. Last week the dollar was gradually recovering. Today, however, the EUR/USD pair rose back above 1.13, the highest level since the week. We are still within a limited fluctuation range, however, with the US currency currently in a slightly weaker condition.

It is also a good scenario for emerging country currencies (EM), including the zloty. The Polish currency has also moved in the last two weeks or so within a limited range of volatility, as has the broader market. Good data from the eurozone and the globally weaker dollar brought the main currencies against the zloty into the lower limits, reversing the losses incurred due to the dollar's appreciation last week.

The EUR/PLN exchange rate fell to approx. 4.43 PLN and the USD/PLN exchange rate fell to approx. 3.92 PLN, the lowest levels in a week. The future fate of the Polish currency depends on changes in sentiment in the broader market and the dollar. This sentiment has now been supported, hence a significant weakening of the zloty in the coming days is unlikely to be expected.