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Daily analysis 08.07.2014

, Autor:

Marcin Lipka

ECB comments pushing the Euro slightly higher. Weaker-than-expected industrial production from the UK is keeping the cable under pressure. Major investment banks are forecasting earlier US rate hikes. Chojna-Duch is giving more details on her policy. The zloty is a bit stronger in the late morning.

Macro data (CET- Central European Time). Survey is supplied by Bloomberg unless otherwise noted.

  • 19.00 CET: FOMC member Jeffrey Lacker is scheduled to speak on monetary policy.
  • 19.45 CET: FOMC member Narayana Kocherlakota is scheduled to speak on monetary policy.

Low volatility. The pound. Revisions

The EUR/USD during most of the Monday's session was traded slightly below 1.3600 level. However, comments from the ECB member pushed it above that number. Today in the morning much more attention is brought by the pound, which dropped around a half of figure after much-weaker-than expected industrial production.

Overall, the recent hours have been pretty calm on the markets. The most heavily traded currency pair gained some value at the end of the session after the ECB executive board member Sabine Lautenschleager comments. The former Bundesbank vice chair (hawkish) said that “Only in a real emergency situation, for example in case of imminent deflation, could in my view such an instrument (quantitative easing – author's note) be considered”. Lautenschleager comments are in line with her previous remarks but the newly appointed ECB member pushed the common currency slightly higher.due to lack of other information.

The GBP/USD has been flirting with 6-year highs but today's data put some pressure on the cable. The industrial production slumped by 0.7% m/m (the lowest reading in 16 months), whereas Bloomberg survey called for a 0.4% rise. A relative weakness (especially comparing to pretty robust numbers from other parts of the economy) was also observed on the y/y basis where the index dropped from 2.9% recorded in April to 2.3% generated in May. It is hard to say whether the most recently published data can have any impact on the Thrusday's Mark Carny conference. If the BoE chief would like to stay as dovish as possible he can use it (besides still subdued wages) to extended expectations of ultra-low interest rates for longer.

Due to solid US jobs data, increasing inflation and overall good prospects for the economy some investments banks revised its projections for the first interest rate hike. During the weekend Goldman chief economist Jan Hatzius in the note sent to the bank's clients brought his projections forward from Q1 of 2016 to Q3 2015. What is interesting, the “GS” was pretty dovish regarding the monetary policy in the States and, according to Bloomberg, it was the first time in the recent cycle when the bank changed the forecast for an earlier rather than later move. Similar changes were made also by JP Morgan and Bank of Tokyo Mitsubishi.

Summarizing, today we will probably have another calm session and most transactions are supposed to be made at 1.3600 plus/minus 20 pips. A bit more volatility is expected during the evening hours when some FOMC members comments are planned.

Slightly stronger

The zloty was pushed a bit higher yesterday due to the following reasons. Firstly, investors are getting more convinced that the MPC will not cut rates. According to the most recent NBP projections, the economy does not seem to slow down in the incoming quarters (it would be a main argument to build the broad consensus for the cut in the Committee). Secondly, the local currency was also supported by a fairly benign Russian reaction for a strong Ukrainian military intervention in the east of the country and an oil price drop to the levels last seen before the Iraqi crisis erupted.

Today on the TVN BiS Elżbieta Chojna-Duch was pretty precise how she would like to proceed the call for interest rate cut. According to the MPC member, if we see a prolonged period of negative inflation (more than few months), she would like either vote for a 25 bps cut or 50 bps reduction on the September meeting. Currently, however, she seems to be the only member in the 10-person Committee who would vote for to lose the monetary policy, so the probability of any cut in the incoming months remains still quite low.

Summarizing, the zloty may continue a slight appreciation (around a quarter of one percent) to the Euro or a Swiss franc, but a more significant move is not expected and both EUR/PLN and CHF/PLN should not fell below 4.13 and 3.40 respectively.

Expected levels of PLN according to the EUR/USD rate:

Range EUR/USD 1.3550-1.3650 1.3450-1.3550 1.3650-1.3750
Range EUR/PLN 4.1200-4.1600 4.1200-4.1600 4.1200-4.1600
Range USD/PLN 3.0400-3.0800 3.0600-3.1000 3.0200-3.0600
Range CHF/PLN 3.3800-3.4200 3.3800-3.4200 3.3800-3.4200

Expected GBP/PLN levels according to the GBP/PLN rate:

Range GBP/USD 1.7050-1.7150 1.7150-1.7250 1.6950-1.7050
Range GBP/PLN 5.1700-5.2100 5.1900-5.2300 5.1500-5.1900

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