Currency summary of the week. China in the spotlight.

Last week (especially its tip) was extremely intense, mainly due to the publication of industrial data. We learned readings from, among others, Europe, Japan and the USA. A week ago we started with poor volatility, which was caused by a holiday in the United States. European stock exchanges were recovering, which caused most of them to end their session in red. Individual companies performed much better than indices. CD Projekt deserves special attention (almost constantly replaced in recent days).

Nice week for the dollar

In the US, Wall Street is in its best quarterly earnings season. Some expect new, historic peaks on the S & P500, while others expect a larger correction in the highly overvalued stock. Throughout the week, US index futures were at neutral levels, as if waiting for an unexpected boost.

The dollar did not respond remarkably to Donald Trump's hot week of speeches. The first of these took place at the economic forum in Davos. Just two years ago, the President of the United States devoted his entire speech to the promotion of the America First program. Almost similar ignorance spread around the news that the head of the White House was criticizing Federal Reserve for raising interest rates. The Fed's actions in its rhetoric resulted in much smaller economic growth, which could have reached 4% without raising interest rates.

Chart EUR / USD, H4 interval. Source: xNUMX XTB xStation

A strong dollar also hurts Trump. On the one hand, he stressed in a recent interview that he reflects the state of the economy, while on the other he will be holding back the industry. It has been known for a long time that a strong domestic currency has a negative effect on exports. Foreign importers of American goods may be increasingly discouraged by increasingly expensive payments in USD.

So what makes the dollar strengthen so effectively? I think that this is still a side effect of recent events and that the new fear of Chinese disease problems is pushing capital towards safe assets.

Virus "pushes" capital out of China?

The virus has been talked about for several days, and fear is fueled by new victims that appear outside the primary focus of the disease. This drives additional panic, which also seems to be spreading to financial markets. Chinese authorities reassure citizens that the situation is under control. Trade and medical organizations that support the introduction of a state of emergency are of a different opinion. The Chinese stock market has slightly overestimated this week. It has brought other Asian markets with it. If we look at similar "optimism crises", they are usually impulsive and the markets return to normal after the first waves of bad information. Will this be the case this time?

Chart USD / JPY, H1 interval. Source: xNUMX XTB xStation

For now, however, I would be cautious in drawing conclusions about the alleged economic slowdown caused by the virus. It is much too early for this type of speculation, the more so that the eastern economies lost their impetus practically for most of 2019. The downturn in the USD / JPY should slightly suggest that the yen also gained in investors' eyes as a potentially safe asset. It is a currency that is completely out of the conservative basket - gold, dollar, US bonds, but is a moderate mix of stability and greater risk exposure. Technically, the situation is not very pro-growth. Nevertheless, there is a good chance that this gap will be closed in the coming days.

The ECB in the spotlight

EBC despite the investors' great attention related to the meeting, he did not do anything phenomenal. As expected, interest rates remain unchanged. In addition, Lagarde quenched all optimism and appetite for fresh politics by stating that she is not going to change anything in the near future. Better inflation data, according to the ECB President, was in line with expectations, which is a further premise for continuing the current monetary policy provisions.

EUR / PLN chart, M30 interval. Source: xNUMX XTB xStation

One of the novelties that the ECB will undertake is a review of the strategy. Actions in this matter have been announced many times, but only now have they become the focus of the bank. The main topic will obviously be inflation and the methods of skilful and effective control. For now, however, details are missing. Given the very secure attitude of the head of the European Central Bank, we should not expect major plans or ambitious resolutions for the time being. In my opinion, this subject, despite the actions taken, will go a long way.

Despite the strongly neutral activities of the European Central Bank, this has translated positively into the euro in the context of regional currencies. Visible appreciation against the zloty lasted almost the whole week, with smaller corrections.