Zloty pares some losses (Afternoon analysis 03.07.2018)

Better economic sentiment is supported by the euro and the zloty. However, market attention is largely focused on Friday's labour market report in the US, which may hold back the rebound somewhat.

Improvement is visible but slightly

The main European market indexes clearly appreciated (even over 1%), and the euro also gained in value. Today, the EUR/USD quotations rose to about 1.167 just before 3.00 p.m., although they tested the 1.16 p.m. boundary yesterday afternoon. One of the factors favouring the single currency was the agreement between the German Chancellor Angela Merkel's party (CDU) and the CSU on migration. Although it also assumes the support of the SPD, it seems that at the current time the crisis within the coalition governing Europe's largest economy has been resolved.

Around midday, the US President wrote on Twitter that trade agreements are going 'very well' and that most countries agree that they need to be changed. Furthermore, he claimed that the talks on North Korea were going really well, which could also improve the sentiment (looking back at how the reports on this matter affected the market).

With the euro appreciated the zloty. Recently the zloty has been relatively weak, but today a slight rebound was observed. The euro has moved away from yesterday's highs of over 4.41 PLN and returned below 4.40 PLN around 3.00 p.m. However, as in the case of the euro or the dollar, these are very limited changes.

The zloty is still under internal pressure (e.g. dispute with the European Commission, lack of perspective for higher interest rates), and at the end of the week, there may be additional data related to important macroeconomic data from the US on the labour market. Although this data may fail the market expectations (which would help the zloty), the negative factors for the Polish currency will not disappear quickly and, apart from temporary rebounds, it is likely that the downward trend will continue.

Tomorrow's preview

At 10 a.m. IHS Markit will publish the second PMI reading for the eurozone for June. Preliminary data showed an increase in the general index for the single currency region, although this was mainly caused by the acceleration of the services sector. On the other hand, the industrial sector has clearly failed in Europe's largest economy, Germany. However, it seems unlikely that the final results will differ from initial estimates, a weaker than consensus reading could worsen the sentiment in the market.

Potential changes in the main currencies seem to be limited. The market's attention is focused on Friday's US labour market report and no significant changes are expected until then (unless there are unexpected reports on international trade, i.e. customs).

At 10:30 a.m. the Markit will present June PMI data for the UK services sector (single reading). Over the previous two months, the index rose to its highest level since February (54 points). The median of market expectations indicates a minimal decline in PMI in this sector to 53.9 points. However, the next consecutive month of growths could support the pound somewhat, although it seems that the Brexit issue and the general market sentiment will play a greater role in the case of the British currency.