Weak data from France (Daily analysis 27.07.2018)

The dollar is stronger before US GDP publication. Economic growth in France clearly fails the expectations. The zloty maintains most of the recent growths, but the dollar appreciation is starting to push the EUR/PLN to around 4.30 boundary.

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

• 2:30: GDP from the US for Q2 of 2018 (estimates: 4.2% QOQ seasonally adjusted and annualised).

Market knows the GDP of France but waits for the US GDP

The market quickly forgot about the positive news for the euro from Washington, where customs duties on imported cars from the EU were probably avoided, and also about yesterday's ECB conference, where hawkish signals were slightly weakened by dovish suggestions. Investors try to assess what can be a real stimulus for change in the coming hours.

The sentiments observed in the euro are quite average, due to the worse than expected GDP data from France. The growth in the Q2 was just 0.2% quarter-on-quarter, which was 0.1 percentage points below economists' estimates. It is the second consecutive quarter when the growth is only 0.2% QOQ. Economists justify this with strikes (against Macron reforms), but it seems that this effect was not that strong to have a key impact on the whole reading.

Data indicates that consumption is clearly below in red (negative for households) and investment has been growing much slower since the beginning of the year than in the back of 2017. In addition, net exports and positive stocks contributed negatively, which may be perceived as an exceptionally unfavourable combination. As France is the second largest economy in the eurozone, weak data from France may also contribute to weaker publications across the single currency area, and this could also burden the EUR/USD pair.

In the USA, on the other hand, a completely opposite trend can be observed. In the afternoon, GDP data from the US for the Q2 will be published. The median of economists' estimates surveyed by Bloomberg shows an increase of 4.2%. (seasonally adjusted and annualised). This is just over 1.0% QOQ (without annualisation), which is 5 times faster than in the case of France.

Moreover, the market speculates that the publication may be even better, due to the recent positive remarks made by President Donald Trump in relation to GDP (yesterday he said that the data would be "great"). When less than two months ago Trump commented on the expected data from the labour market, it actually exceeded the market estimates (the US President receives the data before publication time).

Therefore, around midday, the EUR/USD pair is relatively close to the 1.16 level. This is also about 1% above the yearly lows on the main currency pair. If the US GDP were to be in the range of 4.5% to 5% in the Q2, a further dollar strengthening would be expected. However, such values are really difficult to maintain by the USA in the long term. In addition, yesterday the estimates of the Atlantic Fed (GDPNow model) were revised significantly (from 4.5% to 3.8%) due to the lower contribution of stocks and net exports. Although the dollar has a lot of arguments to appreciate, rumours (related to Trump's remarks) and the recent revision of GDPNow's estimates may mean that expectations have been excessively high and that a crash with reality will ultimately weaken the USD.

Limited zloty's depreciation

Stronger dollar and average GDP data from France are negative information for the zloty. However, the zloty does not incur significant losses, mainly due to the declining trade conflict between Washington and Brussels. Therefore, the zloty should be slightly less sensitive to external factors than it was the case at the culmination of trade threats.

The EUR/PLN should not deviate significantly from the current level, i.e. 4.30 level. Only a particularly high GDP reading (above 5% in the USA) combined with an increase in the yields of the US Treasury bonds and the dollar could further weaken the zloty. Otherwise, the afternoon for the Polish currency should be relatively calm.