Waiting for ECB statement (Afternoon analysis 24.10.2018)

The euro quotations have been approaching their lowest level for more than a year. The zloty weakens and the chances of paring losses decrease as the eurozone's economic perspective worsens.

EUR/USD below 1.14

Today's session was marked by a clear euro depreciation. Although the single currency has been gradually falling for about a month, today's downward trend has been triggered by weak data on activity in the services and industry sectors. The preliminary PMI figures for both sectors were below consensus, falling at the lowest level in two years.

This was enough for the EUR/USD pair to fall below 1.14 for the first time in over two months. The weakening of the euro combined with the appreciation of the dollar also contributed to an increase in supply pressure on the zloty. The EUR/PLN exchange rate exceeded 4.30 and USD/PLN 3.78. The scale of the pressure was limited by the improvement of moods on the global market.

The zloty's condition for the rest of the day will be primarily a result of the EUR/USD quotations and the main market indexes in the USA. The Polish currency was supported by an increase in European indexes by more than 1%, as well as a decrease in the pressure on euro-dollar quotations (just after 3:00 p.m. they were again above the 1.14 limit).

However, recent trading weeks on both the foreign exchange and stock market show how fast market sentiment can be reversed. A potential increase in risk aversion and an increase in the dollar's value in the afternoon could have a negative impact on the zloty's quotations. The market may also focus on tomorrow's ECB statement. Concerns about easing the message will rather prevent the euro from reacting and appreciating more. As a result, the chances of the zloty paring losses are also limited.

Tomorrow's preview

On Thursday, there will be the most important event of the week. After the European Central Bank (ECB) meeting, a press release on monetary policy will be published at 1:30 p.m. and a press conference with its President, Mario Draghi, will start three-quarters of an hour later. Draghi's statements can be particularly analysed in the context of the increasingly frequent signs of a slowdown in the eurozone.

It is unlikely that the head of the ECB will make hawkish comments given the market situation. In his recent speeches, he has clearly communicated an increase in core inflation. If this message is relaxed, it may put additional pressure on the already weakened euro. Further depreciation of the euro in relation to the dollar would probably also weaken the zloty basket. Regardless of the nature of Mario Draghi's statements, we can expect an increase in volatility in the currency market since the beginning of the press conference.