Tension temporary eased (Afternoon analysis 4.10.2018)

The dollar and yields of the US Treasury bonds are revising the recent increases. The market awaits Friday's data from the US labour market. The zloty is still relatively weak. The EUR/PLN in the 4.30-4.31 range.

Today the data on new initial jobless claims in the USA was published. The data was slightly below the forecasts (207k vs. 251k), which, however, was neutrally received by the market. For some time now, the number of claims has been fluctuating around 50 years lows, so it is difficult for investors to be excited about this fact every time.

However, tomorrow's readings from the Department of Labor may evoke much more emotions. Particularly in the case of wage data. The market consensus indicates that wages will increase by 2.8% y/y (by 0.1pps below the August reading). However, if the data is above the forecasts (2.9-3.0%) then a positive reaction on the dollar can be expected. It is worth noting that the distribution of estimates of economists surveyed by Bloomberg would suggest a negative rather than a positive surprise (the average is 2.76% and the median is 2.8%).

A positive surprise would also confirm the latest very good readings. This would possibly continue to support the dollar and the yields of US Treasury bonds.

On the other hand, the Labor Department data comes from a rather limited sample of households and enterprises. This introduces the risk that the official reading may differ from the actual labour market situation. Therefore, it is possible that the afternoon session is a little weaker for the dollar and the EUR/USD moves to the 1.1520 level. Some investors just want to avoid "accidental" failure of the data not meeting very high expectations.

The rest of the reports from the labour market should no longer evoke increased emotions if they meet a relatively broad consensus. Only some dramatic surprises, such as the reading of new payrolls below 150k or above 250k, may trigger greater changes just after the Labor Department's data.

On the other hand, it seems that regardless of Friday's data, the dollar should remain in good condition. There are too many arguments in favour of the US currency to expect its strong weakening. This, in turn, may still put pressure on the zloty and its exchange rate is likely to remain under pressure from both the euro and the dollar.