Afternoon analysis 15.02.2016

, Autor:

Marcin Lipka

Draghi's hearing before the EU Parliament pushes the euro slightly lower. How is the SNB going to respond to the ECB decision? The zloty remains fairly stable to the euro and is lower to the dollar. The S&P on Polish rating.

The euro is slightly lower during the Draghi's statement

From the moment Draghi's hearing has begun the EUR/USD lost around 30-40 pips comparing to the levels observed before the EU parliament hearing. Due to the fact that the Q&A session hasn't ended yet it is possible that the sell off may go deeper. Later in the afternoon no new messages are expected do to market closure in the US.

The most important part in Draghi's hearing was noting two issues which can change the monetary policy measures. Firstly the ECB is expected to evaluate “the strength of the pass-through of low imported inflation to domestic wage and price formation and to inflation expectations. This will depend on the size and the persistence of the fall in oil and commodity prices and the incidence of second-round effects on domestic wages and prices. Second, in the light of the recent financial turmoil, we will analyse the state of transmission of our monetary impulses by the financial system and in particular by banks. If either of these two factors entail downward risks to price stability, we will not hesitate to act”.

What is worth noting is the issue regarding turmoil on market which may also push the ECB to act. As a result we may evaluate that the ECB decision can be even more aggressive than previously expected. Finally it can push both the rates lower the QE higher.

Expectations before the SNB decisions

Last week Bloomberg asked 31 economists from leading investment banks on the anticipated SNB decision if the ECB decides to modify the monetary policy. If there is a cut in the euro area 6 respondents also see a cut by the SNB, nine claim that there would be FX interventions and eight economists claim that both measures are expected to be implemented.

Additionally, the media expectations on the SNB rate is minus 1.25. It means that most of them foresee a 50 bps cut. If such a strong action is observed it should also push the Swiss franc lower. Moreover it would also reduce the interest rate for the CHF loans.

Despite a slide on the EUR/USD there is no significant selling pressure on the EUR/PLN. It is possible that the zloty is kept lower due to another comments from Standard&Poor's officials. According to Bloomberg S&P claims that “If we see further deterioration of independence of key institutions in Poland” it may push “S&P to further lower Poland’s rating”.

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