Zloty in good condition (Afternoon analysis 25.07.2018)

Today's EU-US meeting will be the most important event for the market. Even before it started, uncertainty hit the share market - limited currency movements.

EUR/PLN below 4.30

The reaction of the global share market (falls in the main European indexes and futures contracts in the USA) showed a high degree of uncertainty in connection with today's discussion between Jean-Claude Juncker, President of the European Commission, and the US President on international trade issues. Also, today's Twitter entries by Donald Trump indicate that he will not resign on customs and 'will not show weakness'.

Such a tough approach to negotiations may, in turn, limit the chances of an agreement between the US and the EU (the latter party wanted, among other things, to abolish tariffs on imported cars). The meeting is scheduled for 1:30 p.m. (ET), i.e. 7:30 p.m. Polish time.

Several hours before the meeting, the impact of the negotiators' statements on the currency market was limited. It is probably caused due to the fact that a big breakthrough in the talks is not expected, but the final effect of customs duties (which are not yet certain) on individual currencies is difficult to estimate. Releasing customs duties on EU cars would be positive for the euro, but it is not clear whether this will be the result of today's Trump-Juncker talks.

Taking into account increased uncertainty, it is worth noting that the zloty is relatively strong, especially as such conditions most often did not support the Polish currency. The EUR/PLN quotations fell below 4.30 today, near the lower limit of the last month. However, negative news from the US President's meeting with the EC President may worsen the condition of the zloty. Failure to reach an agreement may eventually result in a decrease in zloty valuation by 0.02-0.03 PLN against the main currencies.

Tomorrow's preview

At 1.45 p.m., the European Central Bank (ECB) will publish statement after the 2-day Governing Council meeting on monetary policy in the eurozone. The interest rates and the asset purchase program will remain unchanged. However, given the ambiguity in the statement of a month ago that 'interest rates will remain unchanged for at least the duration of the summer break', (the Polish translation is 'until summer break') 2019, the ECB may want to clarify this in this statement or at Mario Draghi's press conference (start at 2:30 p.m.). Therefore, increased fluctuations of the euro can be expected around this time, although it appears that there is relatively little probability of clarifying the wording on interest rates.

Alongside the start of the ECB President's conference, macroeconomic data from the US will be provided. The Department of Labor will present a weekly report on initial jobless claims. Last week's data was a positive surprise - the number of claims fell to the lowest level since the end of 1969 (207k). The market consensus points to an increase in this number to 215k. Although significant fluctuations are unlikely, an improvement in the last record may strengthen the argument about the very good condition of the US labour market and support the dollar.

Especially if June's data for durable goods published by the Census Bureau at 2.30 pm.. shows a solid increase. Last month, this data failed market expectations in the context of a more important core index, i.e. orders excluding relatively volatile transport orders. An increase of 0.5% per month was expected, but it remained unchanged (revised from a 0.3% decrease). International trade and customs issues will continue to be relevant and will have a significant impact on the dollar's performance, but a positive set of this data could support the dollar.