Zloty somewhat stronger and dollar awaits Friday (Afternoon analysis 5.12.2019)

The number of initial jobless claims in the US has fallen. Thursday's session did not bring any significant fluctuations in the major currency pairs. Market participants' attention has already been focused on other publications from the US economy, which will be published on Friday. The zloty was slowly appreciating, and the EUR/PLN exchange rate was below 4.28 PLN.

Readings from the USA above expectations but with limited impact on the market

Thursday was marked by relatively calm quotations on the currency market. Data from the eurozone were published, including GDP growth pace (in line with expectations) and retail sales (slightly below), but they were rather neutral for the market. Without significant reports on international trading, the dollar came under light supply pressure. The dollar index (DXY), which measures its strength in six major currencies about half an hour after the start of the New York Stock Exchange session, lost nearly 0.2%, remaining close to the bottom line of the last month's quotations. The scale of the drop in the US currency's value against the euro was also similar. The EUR/USD quotations increased slightly over 1.11 in the afternoon and oscillated close to this level.

The aforementioned supply pressure on the dollar is the result of lower than expected macroeconomic data published on Monday and Wednesday - ISM activity and employment rates according to ADP. In turn, today's macroeconomic data from the US economy can be considered as moderately positive. The US trade deficit of 47.2 billion USD in October turned out to be 1.3 billion below expectations, and September's data (1.4 billion lower deficit) were also revised upwards. October's negative trade balance was at the same time the lowest since mid-2018. The number of weekly data on jobless claims, amounting to 203,000, was also surprising. It turned out to be the lowest since May this year and 12,000 lower than the market consensus. This should put an end to the slight fears about the labour market in the USA, which could have emerged after two consecutive November readings of 227,000 and 228,000.

October's data from the USA on orders for durable goods did not look that good. The monthly growth of 0.5% turned out to be 0.1% lower than both the September reading and market expectations. The data on industrial orders were also revised downwards (by 0.2 percentage points), deepening the declines in September. However, these are not major changes, and we can already say that they are "historic". Therefore, today's impact of macro readings on the market was limited. Tomorrow's labour market data and consumer confidence indicators will be important. If they also deviated from expectations, the dollar could be subject to more significant fluctuations. Currently, we do not have a clear picture of the US economy, but Friday's data may change this. It is also still unclear whether the first phase of the US-China trade agreement will be signed by the end of this year. The settlement could lead to an appreciation of the dollar, at least in the short term.

Investors' expectations for Friday's macroeconomic publications from the USA, closely observed by the Federal Reserve (its meeting next week), strengthened the zloty's basket slightly. Regularly, the EUR/PLN exchange rate was below 4.28 and the USD/PLN rate below 3.86. A further increase in the zloty may be hampered by the worsening of sentiment towards more risky assets, which we observed in the afternoon. The market participants should rather refrain from making fundamental changes in their positions before tomorrow afternoon, especially since the macro calendar is practically empty later this Thursday.

Tomorrow's preview

At 8:00 a.m. Destatis will present data on industrial production in Germany in October. The median of market expectations indicates a minimal increase of 0.1% per month and a decrease of 3.6% per year. The data on orders published today showed somewhat failed to meet expectations. German industry suffered the most from the US and Chinese customs wars. A positive reading could confirm the positive trends in German industry and in the eurozone, as well as a slight strengthening of the euro.

The data from Germany are unlikely to lead to significant market changes. Readings from the USA can do this. The Labor Department will publish the November Labor Market Report tomorrow at 2:30 p.m. Investors will pay particular attention to the change in employment in the non-farm sector (projected increase by 185k) and the change in average wages (predicted increase by 3.0% year-on-year and 0.3 month-on-month). Macroeconomic readings this week were mixed. Tomorrow's report will probably be decisive in terms of the impact on the dollar's valuation this week so that we can expect significant fluctuations around the publication time. However, if the report's tone is mixed (e.g. stable wage growth of 3% and slightly lower than expected employment growth), the dollar's value, when the fluctuations cease, may remain at a level similar to the current one, and the EUR/USD exchange rate will continue to oscillate around 1.11.

For the dollar and more broadly for the US economy, the data on the US consumer sentiment index in December, published by the University of Michigan at 4:00 p.m., will also be important. Consumers will have to maintain stable GDP growth in the US in the face of the global economic slowdown and international trade distortions. A sign of their weakness may reduce the likelihood of hawkish signals from the Federal Reserve and consequently harm the dollar. The median of market expectations indicates a slight increase of 0.2 pts to 97.0 pts.