Waiting for Wednesday (Afternoon analysis 13.02.2018)

Poland's deficit of commodity account for December amounted to its highs in 5 years. The zloty remained stable before tomorrow's set of important publications.

Weak data from Poland with limited impact on exchange rate

The data on current account balance published today by the National Bank of Poland (NBP) practically confirmed yesterday's GUS estimates. Poland's deficit in foreign goods trade amounted to around 1.2 billion EUR, which was the highest in 5 years (one month earlier a surplus of 233 million EUR was recorded). Theoretically, the aforementioned data is negative for the zloty, but it was practically ignored by the market.

Zloty quotation remained stable. Mainly due to a lack of significant foreign publications, which could have an impact on the broad market and the relatively quiet market session. Although the main indexes were losing (both in Europe and the USA), the depreciation and fluctuation scale in relation to the end of the previous week was limited.

The weaker dollar was a support for the zloty during today's session. The exchange rate of the main currency pair (EUR/USD pair) increased to about 1.236, the highest level since last Wednesday. However, the probability of significant changes in zloty valuation later in the day is limited. The market's attention may already be shifting to Wednesday's publications, which may have an enormous impact on the broad market.

Tomorrow's preview

Tomorrow is a crucial day for the market. At 8.00 a.m., Destatis will publish January's data on consumer inflation (second reading) and preliminary data on the German economic growth pace for Q4 of last year. The median of expectations points to growth in around 1.6% and 2.3% per year. Three hours later, Eurostat will publish GDP growth data (for the same period) for the eurozone as a whole (consensus: 2.7% year-on-year).

December's industrial production data will be published at the same time, a yearly growth of 4.3% is expected, which could mean that the sector has been growing at its fastest pace in over 6 years. If Eurostat confirms market expectations, or even if it turns out to be slightly better than market expectations, strong euro appreciation may be seen. Moreover, the market may be afraid of the afternoon data from the US, which in turn may reduce demand for the dollar slightly.

For the zloty, the Polish Central Statistical Office (GUS) data on the GDP growth pace in Q4 may be crucial (published at 10.00 a.m.). During the last three months, the Polish economy might have grown at a rate exceeding 5% per year (the median is expected to be 5.2% vs. 4.9% in the previous quarter). However, the probability of deviating from this value is limited, therefore the data may turn out to be neutral for the zloty, which means that it will be more sensitive to external factors.

Wednesday's most important publication will be the one from the Bureau of Economic Analysis (BEA) on consumer inflation (CPI) in the USA. The market consensus assumes the headline inflation reading at 1.9% and the reading of core index (a much more significant inflation rate) at the level of 1.7% per year. Probably already a deviation of 0.1 percentage points from the consensus in the latter case may cause significant dollar fluctuations. A rise in core inflation above 1.7% could strengthen the dollar. As a result, it may have a negative impact on the zloty, if the outflow of capital from emerging markets and the return on U. S. Treasury bonds is observed.