Daily analysis 04.07.2014:
Much-better-than expected employment data from the States boosted the dollar. ECB changes – fewer meetings and minutes. Fed is getting closer to fulfill its mandate. The zloty in line with our expectations was stable during the payrolls and Draghi conference.
Macro data (CET- Central European Time). Survey is supplied by Bloomberg unless otherwise noted.
- No macro data, which may significantly affect the analyzed pairs.
NFP. ECB. FOMC
The dollar gained some value to the Euro after solid US jobs data and dovish message from the ECB. The most heavily traded currency pair, however, needed some time to slide below 1.3600 level. Today, due to Independence day, no trading is expected after 17.00 CET.
This time the ADP data nearly matched the official BLS reporter. According to Labor Department US economy added 288k jobs in June (expectations were set at 210k). Moreover, the reading for two previous months were revised upward by a total 29k allowing the April data to exceed 300k mark. Additionally, according to the household surveys the unemployment dropped to 6.1% (consensus was at 6.3%) what is the lowest level since September of 2008. It also shows almost 1.5 percentage point of unemployment drop comparing the reading from June 2013. The participation rate (showing the number of unemployed and employed divided by civilian labor force) remained unchanged so, the unemployment drop wasn't caused by people who voluntarily dropped from the labor force.
Currently the policy makers, regarding the future interest rates move, also focus on wages changes. According to the BLS the hourly earnings rose in line with expectations at the rate of 0.2% m/m (+2.3% y/y) which is pretty slow. However, it can change pretty quickly as it was in 2004/2005 when average salaries in 5 months rose one percentage point on y/y basis. Such a move cannot be ruled out this time, especially due to the fact that we are approaching full employment in the US.
It was much less interesting on our side of the Atlantic. Mario Draghi still leaves the door opened for a ABS purchases or QE, but needs some time to see whether the recently announced measures are working. The ECB chief also claims that the governing council closely watch the exchange rate especially regarding its impact on the future CPI. Both messages, were expected, so no major market move was generated by the ECB. There was also no reaction after Draghi announced that the Bank will hold the meeting every six weeks or publish minutes (as most major central banks do).
Coming back to the US jobs' report it is worth noting that it is another signal that will bring us closer to the monetary tightening. If we look at the most recent FOMC projections, we can see that the 6.1% unemployment level was supposed to be achieved at the end current year. We are also very close to the longer term targets both for the jobs and the PCE inflation, but very far away from the proper interest rate level. Evan taking into the account the Fed's dovishness. When the Committee starts recognizing that issue, the dollar should increase in value and bonds to lose its lure.
Summarizing the US data pushed the EUR/USD to 1.36 level. Today we dropped additional several pips and in line with our expectations we are ending the week lower than Monday's trading started. The following week will be important not particularly due to macroeconomic publications but thanks to some FOMC members' speeches. We should not expect that ultra-dovish Narayana Kocherlakota (on Tuesday) will bring us closer to the tightening but newly nominated vice chairman Stanley Fischer or dovish Evans may give some hints whether the Federal Reserve recognizing the possibility to rise rates earlier than expected.
The zloty was fairly calm during the US publications and ECB conference. Solid jobs numbers pushed the PLN a bit lower, but later due to “risk on” sentiment caused by another record high levels reached by the US equities we returned to 4.14-4.15 level for the Euro.
Today the trading should also be very muted and the EUR/PLN will be probably traded around 4.14 level. Similar behavior may be observed on the Swiss franc which is expected to remain slightly above 3.40. The following week should be pretty calm on most PLN pairs. Only GBP/PLN is supposed to be much more volatile due to strong global performance of the pound. If UK productions falls short of expectations on Tuesday or BoE gets more dovish than expected, a strong correction on the GBP/PLN is possible.
Expected levels of PLN according to the EUR/USD rate:
Expected GBP/PLN levels according to the GBP/PLN rate:
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