Zloty supported by positive data (Daily analysis 17.07.2020)

Friday's quotations up until midday were relatively calm, with a cautious dose of optimism in the broader market. Still, the number one topic for the market is the Eurogroup meeting on the European economic recovery package, which begins today.

Leaders are cautious

There are high hopes attached to this meeting, although the market does not necessarily expect to reach an agreement on the weekend. The country leaders also seem to be cooling their emotions slightly. German Chancellor Angela Merkel said that "the differences [between countries] remain very, very big" and she expects tough negotiations.

One of the countries with a slightly more frugal approach is the Netherlands. Its Prime Minister Mark Rutte, in an interview with Bloomberg TV before the summit, estimated the chances of reaching an agreement this weekend at below 50%.

Even if the agreement is not achieved this weekend, it still seems highly probable that it will be finally reached anyway, perhaps with some concessions to the group of countries not agreeing to support the economies that were in a weak fiscal position even before the pandemic.

Given the information received so far, the possible conclusion of an agreement would be a positive surprise and would have the potential to increase optimism in the market on Monday.

A strong euro favourable to the zloty

Today, the euro remains in good condition. The EUR/USD quotations increased to around 1.1420, about 0.35% above yesterday's closing, and are at the upper end of the volatility range since the second week of March. These are still favourable conditions for the zloty, which is one of the best-performing currencies in the group of emerging countries.

The USD/PLN quotations are around 3.92 PLN, and the EUR/PLN is about 4.48 PLN. Although we can expect increased volatility in the afternoon as US investors become more active and US consumer sentiment data are published in July, we might wait until Monday for larger movements. The chances for a negative scenario after the weekend are very limited, as is the likelihood of a significant weakening of the zloty.

Promising increases in employment and wages

Today, macro data from the Polish economy also help the zloty. According to the Polish Central Statistical Office (GUS), employment in June rose by 0.2% compared to May, although it was expected to fall by 0.5%, and the average wage in the enterprise sector rose by 3.2%, clearly above the expected 1.3%.

These are positive signs for a return to the pre-pandemic economy. Most likely, however, the road will still be long, rocky and highly dependent on what happens not only in Poland, but also in Europe and around the world.