FX Daily: Dollar can survive negative GDP molds

USD: Equity provides a shield of poor data

The dollar continues to be withdrawn by the opposite troops: US President Donald Trump recalled several steps of protectionism versus evidence of data from US slowdown. In the end, Tiebreak for the impact of FX seems to be equity performance. US shares experienced a good day yesterday because some tariff exemptions for car parts exceeded poor data, and the dollar was strong enough in all boards. We also believe that the late monthly balancing contributes to support the dollar.

Today, all eyes will be fixed on the US first -quarter GDP mold. Economists have revised their estimates lower after the trade deficit rate of goods which is far broader than expected for March, and the consensus is now in -0.1% of the annual quarters. Our economic team agreed that negative reading was very possible. The market will, however, will see how much slowdown is caused by increased imports because pre-section accumulation is relative to effective slowing consumption. We suspect that the personal expenditure rate may not look gloomy, and that the dollar can show resistance to negative GDP molds today.

The other two main releases today are ADP employment rates for PCE April and March (inflation size that Federal Reserve liked). The latter is expected to slow down to 0.1% month to month, which can cause some Fed members to feel more comfortable when discussing the prospect of easing, and potentially can trigger some momentum to fully prices in cutting in June (now 17BP is calculated).

We have a neutral bias on today’s dollar. While the data flow must continue to prove negatively clean, the market clearly welcomes Trump’s efforts to ease some of the tariff pain. We still believe that the constant constant flow of trade (especially regarding China) is needed to keep equity and dollars supported, but for now, it may be enough to let the dollar stable into the payroll on Friday.

EUR: Euro is less reactive to domestic data

This is also a GDP day in all Euro zones today. France has released the first quarter of the first quarter of QoQ 0.1%, in line with market expectations. Germany this morning, with a consensus centered for a simple 0.2% QoQ rebound. The Euro zone number was released at 11:00 in the morning cet, and is expected to show the growth of the first quarter of QoQ 0.2%, the same as in the fourth quarter of the last year.

Except for a major deviation from consensus, we doubt that the numbers of pre-arca GDP will have many impacts on the Euro. The same thing might be said about CPI prints in early April to Germany and France, also because this morning. The market fully buys the European Central Bank’s Dovish Narration, and we think it will require CPI that is much softer than expected to be read to trigger a more dovish repricing. This bar is equal to the impact of Euro material in the event of a hotter inflation than expected, given the ECB attitude that seems relaxed in the price shock and strengthening of the Euro that offers some shields.

We think EUR/USD can begin to find several retains around the 1,140 level. We have seen some strong purchases in the slope lately around 1,130, and the market may not have the confidence to push it back above 1,150 with US equity found several stabilization.

PLN: Print the last inflation before the cutting cycle is continued

The number of headlines today in Central and Eastern Europe will be the April Poland inflation, which is always the first inflation number released for the region. This time, it will receive the attention of special markets because of the National Bank of Poland meeting next week. According to a statement made by several members of the Central Bank Council, the inflation rate in April was determined to determine the size of the next central bank interest rate. We have heard several times that the number below 4.5% must be sufficient to cut the 50BP tariff, which is also our basic scenario for next week’s meeting. We estimate that April inflation slows from 4.9% to 4.3% of years-year-year, in line with market estimates. Core inflation is also likely to be further moderated.

However, the market has shifted to the Dovish side after the March NBP meeting, and the price in cutting the 50BP interest rate next week and the terminal level is around 3.25% from 5.75% at this time. Therefore the market price is on the significant Dovish side versus our estimates of 3.75% for the end of next year. However, if NBP starts the cutting cycle with 50bp next week – and we might see this confirmation today – it will not surprise the market push for further levels of cutting, or at least refuse to provide opportunities for repricing hawkish. Overall, this must keep the EUR/PLN more in the range of 4,280-300, and we see the lower level at this time as temporary.

CEE: Stay hawkish despite market expectations

Flash GDP numbers for the first quarter of this year for the Czech and Hungarian Republics will be published today. In the Czech Republic, we must look at the signs of further economic recovery, with a strong monthly data to defeat the estimated GDP of the Czech National Bank by 1.5%. We expect acceleration from 1.8% to 2.0% yoy, in line with market expectations, but with data referring to some reverse risks. This can only add a picture of Hawkish painted by members of the CNB Council in the last few days.

It is still unclear whether this will cause a pause in the cutting cycle next week, but the Deputy Governor of CNB said yesterday that monetary policy must be tighter than expected before the trade war increased. Therefore we continue to see downside for EUR/CZK, which must be supported by yesterday’s steps in the CZK tariff after the Hawkish of the Central Bank. Therefore we expect a 24,900 test in the coming days.

In Hungary, the first quarter GDP must be similar to the last quarter of last year with a growth of 0.4% yoy. Worse than the GDP number which was expected to have previously been elected by the government on previous days. Apart from the Dovish narrative, the National Bank of Hungarian meeting yesterday confirmed our view that it was still too early for the central bank to make changes. For now, our basic views remain unchanged, and we do not expect this year’s interest rate reduction – although there is a risk of dovish in inflation rates. While the market has given a price of several dovish hopes, FX does not get much benefit from this. We believe that EUR/HUF specifically remains a global game, and local stories do not really affect FX at this time. Increasing global sentiment can support HUF in the short term, but in the medium term, we hope that EUR/HUF will return above 410.
FRANTISEK TABORSKY
Source: Ing