Zloty strongly appreciates and again better data from the USA (Afternoon analysis 5.02.2020)

Employment in the private sector in the US rose the fastest in nearly five years in January. The dollar appreciates. The EUR/USD exchange rate tests the 1.1000 level. The zloty also strengthens, gaining about 1% to the euro, the pound and the franc. A large demand for Polish Treasury bonds in euro, investors will "pay" for the possibility of granting debt.

Further data prove the good condition of the US economy

Further positive signals are coming to the market. The sentiment was positive after slightly better than expected final PMI data of the eurozone and significantly higher in the UK. In the afternoon, the ADP analysts surprised with the employment data for the USA. The number of jobs in the private sector increased in January by 291k, as much as 134k above expectations. It was also the biggest monthly increase since May 2015.

The very good sentiment continued with the beginning of the trading on the New York Stock Exchange. The main US market indexes were gaining about 1% at the start of quotations; at the same time, their European counterparts were going up by about 1-2%. A higher than expected employment level also strengthened the dollar. The EUR/USD quotations tested the 1.1000 limit, and at the same time, the USD/JPY exchange rate approached 110 again (approx. 109.8).

ADP's employment data are not ideally correlated with official Labor Department statistics, which will be released on Friday, but may provide valuable guidance to market participants. This reading raises expectations, and in addition, market sentiment has improved following the publication of the ISM service sector activity index in the US in December. It rose to 55.5 points, 0.4 points above expectations and to the highest level since August last year. This should strengthen the strong condition of the dollar, at least until Friday, when data from the US labour market will be published.

Since the beginning of the day, globally good sentiments supported the zloty's appreciation, which gained nearly 1% against the euro, the dollar or the franc. Following the start of the session on the New York Stock Exchange, the EUR/PLN exchange fell to approx. 4.2370, i.e. to the lowest level in nearly two weeks. The zloty is paring its losses due to, among other things, the auction of the Treasury bonds, which has been widely discussed on the market today. The auction not only generated a lot of interest - the demand for bonds worth 1.5 billion EUR was four times higher. This means that according to Bloomberg's data, Poland has become the first emerging country to be paid for the bond in the euro (-0.102%).

Tomorrow's preview

At 8:00 a.m. Destatis will publish data on orders for machinery in December in Germany, which can be a good indication of the volume of future industrial production. The median of market expectations indicates an increase of 0.7% on a monthly basis. A good reading could support the slightly positive sentiment prevailing on the market, especially as recent readings of industrial PMI indexes indicate an improvement in activity in this sector.

At 2:30 p.m., the Department of Labor will present a weekly report on initial jobless claims. Macro readings from the USA in recent days exceed market expectations, reinforcing both positive sentiment and the dollar. The number of jobless claims is not the primary data as far as the impact on the dollar is concerned. Still, a renewed decline in the number of jobless claims may support by the argument of a slightly greater disproportion of the condition of the US and eurozone economies, which in turn should keep the euro-dollar relationship at relatively low levels (about 1.10). However, the greatest market reaction should be expected on Friday, when the Labor Department will publish its January report on the labour market containing, among other things, changes in average wages and employment in the non-farm sector.