Afternoon analysis 14.02.2017

The GDP growth in the euro zone was worse than expected. However, Poland’s economic growth in the fourth quarter was very positive. The zloty sustains its gains.

Mixed data from Eurostat

Eurostat informed that the euro zone’s GDP growth for the fourth quarter was at the level of 1.7% YoY and 0.4% QoQ. Both of these readings were worse than expected. The collective growth for the EU countries was by 0.1 percentage points higher than the euro zone’s. The best result in the Quarter over Quarter interpretation was quoted by Poland (1.7%). The best three results in the Year over Year interpretation were quoted by Romania (4.8%), Bulgaria (3.4%) and Poland (4.8%).

Eurostat also presented the data regarding the industrial production for December. This index decreased 1.6% MoM and 1% MoM in the euro zone and in the entire EU, respectively. This was the largest decline in the MoM interpretation for the euro zone in more than four years. This was mainly caused by a decrease in the production of the capital goods (negative 3.3%), energetic goods (negative 1.4%) and non-durable goods (negative 1.2%). The industrial production looked completely different in the YoY interpretation. This index increased 2%, which was better than expected.

The euro’s reaction was relatively limited. The EUR/USD remains near the level of 1.06, most likely due to anticipation for Janet Yellen’s testimony, which starts at 4.00 PM. This event will most likely cause more fluctuations on the main currency pair. The PPI data for January caused pressure on the euro as well (positive 0.6% MoM). The main reason for thins increase was caused by an increase in the raw material prices (positive 14.9% MoM).

Positive trend on the zloty

Positive data regarding the Polish GDP growth for the fourth quarter caused the zloty’s appreciation. The Polish currency was also supported by the Eurostat data. Thursday’s data regarding salaries and employment, as well as Friday’s data regarding retail sales, will be a test for the zloty. If these readings are positive, the EUR/PLN may go below the level of 4.30 at the end of the week.

Tomorrow’s events

At 2.30 PM, we will know the data regarding the American CPI. Even though the market finds the PCE readings more significant, the CPI data may give some hints regarding the general tendencies of the price level. Since mid 2016, we’ve been observing a dynamic increase in prices (0.8% in June and 2.1% in December). However, the baseline index was relatively stable.

Also at 2.30 PM, the Census Bureau will publish the retail sales data in the USA for January. This reading is significant for the dollar. This is because the consumption is a significant part of the GDP. The baseline index has been gradually decreasing. In September, it was at the level of 0.7% MoM and it was pushed to the level of 0.2% in December. The market consensus is at the level of positive 0.4% MoM.

At 3.15 PM, the Federal Reserve will publish the data regarding the American industrial production for January. This index increased 0.8% MoM and 0.5% YoY in December, which was a positive surprise. The most significant growth was quoted by the public utility sector (6.6% MoM and 6.2% YoY). However, the market consensus for this index is at the level of 0.1% MoM. Taking into consideration that this data is volatile, its impact on the dollar should be relatively limited.

However, both the CPI and the retail sales data may have a significant impact on an increase in the dollar’s fluctuations. Since last week, the EUR/USD has been moving within a relatively narrow range (1.06-1.07). This caused the dollar’s index (DXY) to remain within the range of 100-101 points. Positive data could cause the EUR/USD and the DXY to go below 1.06 and above 101 points, respectively. The dollar’s depreciation potential seems limited, due to low interest rates in the euro zone, as well as in Japan, and fiscal plans of the American administration.