The market doesn't rest (Daily analysis 30.04.2018)

Weak readings from the German economy. Today's inflation data from the US begins a series of key macroeconomics readings this week. The zloty regained some losses but the situation on the EM FX remains uncertain.

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

• 14:30: Personal income and spending in the US for March (survey: 0.4% m/m and 0.4% m/m respectively),
• 14:30: The PCE inflation from the USA (survey: 0.0 m/m or 2.0% y/y excluding food and energy 0.2% m/m or 1.9% y/y),
• 14:30: Chicago PMI (survey: 58 points).

Surprisingly weak readings from Germany

Market participants have still been experiencing weak economic readings from Germany. Retail sales dropped by 0.6% m/m (seasonally adjusted) in March. It was fourth in the row decrease in retail consumption. On a yearly basis, the sales was just 1.3 higher.

This year industrial production readings were also negative (for January and February on the monthly seasonally adjusted basis). It means that the 0.6% GDP growth consensus for Q1 will probably not be met. It will have a negative impact on the euro.

In the afternoon Germany will publish inflation data for April. Taking into account the regional data and the broad consensu at 1.5 % y/y there should be no major surprise regarding prices for the last month.

Key inflation data from the US

Today's session may be important for the dollar. In a few hours, the PCE core inflation is expected to hit the wire. Market participants expect the reading between 1.9 and 2.0% change on a yearly basis. Achieving that latter result would push the core prices growth to 6-year highs. If the data is pushed above 2.1 (low probability) it will be a nine-year high.

Probably hitting just the 2.0% mark for the PCE would markedly boost the dollar. The market may finally believe that the US inflation can be on the ascending track. It should also boost the interest rate expectations for the Fed. Combining it with limited probability of any hikes both in the eurozone and the UK; the dollar should be in a favorable position

Finally, the EUR/USD may resume its recent slide after marginal gains observed on Friday. Moreover, it is possible that when discussion on the inflation dominates the US session, and the 10-year yields return above 3.0% the dollar could strengthen, and the EUR/USD should be pushed toward 1.2000 figure.

Weaker zloty

The zloty failed to keep the Friday's gains. Before the midday, the EUR/PLN was traded in 4.22-4.23 range while the USD/PLN returned close to the 3.50 mark. The PCE readings from the US will be key concerning the afternoon trading on the dollar. If the inflation rises to 2.0% level, we may expect the EUR/PLN to rise to 0.5 percentage while the USD/PLN may gain up to 1.0%.

It is also worth noting that the currency week is full of macroeconomic readings. For Friday the Fed's meeting is scheduled while on Friday the payrolls are set to be published. Additionally, the ISM readings are expected to hit the wire this week. Concerning the eurozone, the preliminary GDP data and April inflation will be published in the following days. Taking into account the most recent reading on both sides of the Atlantic the data should support the dollar against the euro.