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Daily analysis 10.12.2014

10 Dec 2014 12:00|Marcin Lipka

High volatility on USD pairs. Thursday's SNB meeting will not change much. Tomorrow Russian Central Bank decides on rates. Ukraine on the verge of bankruptcy. Polish zloty remains resilient to the global turmoil.

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

  • No macro data which may significantly affect the analyzed pairs.

Strong corrections in recent trends

When Friday's payroll data hit the wires it looked like the dollar would be a winner for at least few following weeks. This time, however, the stronger US reading was used to book some most recent profits. With more speculation and stop-loss haunting it translated into a stronger correction.

The profit-taking gave some opportunity for dollar bears to generate a rebound which pushed some “greenback longs” out of the market. It coincide with more trouble in Greece what may look a bit awkward to see euro rising taking into consideration the turmoil from Athens. But on Tuesday the USD weakening covered all other news.

The dollar sell-off pushed EUR/USD toward 1.2450. More spectacular moves were even observed on the USD/JPY. The Japanese currency strengthened by more than 3% pushing the dollar-yen pair from 122 hit on Monday to lows around 118 yesterday.

Fundamentally, the recent moves hasn't changed much, but in the short term the scenario for USD/JPY to hit 124 or EUR/USD difficult to achieve.

CBR and SNB meeting

Tomorrow Russian Central Bank (CBR) is scheduled to decide on interest rates. Due to fairly complicated economic situation of the world's largest country it is hard to build consensus regarding monetary policy. According to the Bloomberg median estimate the CBR will hike the rate by 50 bps to 10%. However, the projection range is pretty wide (from 9.50% to 12.00%). Also, many foreign economists predict a 10.5% value.

It is possible that a hike exceeding 100 bps may help the rouble a bit and show the market that the CBR is really concerned about the inflation regardless the opinion forced by Kremlin. It may be, however, a short-term relief.

No matter what decision is announced by the CBR chief, the rouble would be under a strong influence from oil prices. Taking into the account the there are no sings that the Brent slide may pause or reverse the central bank may act only reactively to curb the negative effects of commodities depreciation.

Also, on Thursday the SNB is scheduled to meet. We should not expect any major changes concerning the Swiss monetary policy. The statement will be probably very close to that issued in mid September when the MPC repeated the promise to hold the EUR/CHF floor at 1.20 and implement additional measure if these levels come under significant threat.

Moreover, we will see more cuts concerning inflation and future growth especially that the recent ECB estimates were revised significantly downward. The market is, however, ready for such scenario so it should be not a boost for the currency move. There is virtually no chance that the SNB announces negative interest rates. As a result the range trade scenario around between 1.2010 and 1.2050.

A real bankruptcy threat

As the Financial Times reports, Ukraine will need additional 15 billion USD on top of 17 billion announced by the IMF earlier. The Fund also suggests that Kiev does not proceed all the reforms as requested so more money may be halted. It is hard to judge whether the issue is raised to keep additional pressure on the society and tight even more their belts to withstand economic turmoil. But looking at the hard data the situation looks really dramatic.

From the beginning of the year the hryvnia dropped 50% to the dollar and CPI jumped 20%. Ukrsibank assumes that the real prices are even 40% higher due to deviated inflation basket used by the statistical office

The currency reserve situation also looks pretty dire. It dropped below 10 billion USD level whereas in September it was 16 billion. If Kiev does not receive help, regardless whether there will be truce in the east or not, the bankruptcy will be inevitable.

Stable zloty with appreciation potential

The zloty was pretty stable yesterday despite the fact that global equity markets were showing a significant risk aversion. The EUR/PLN pair didn't react on high global volatility and capital outflow flow peripheral debt market. Such benign zloty reaction may translate into further appreciation when the situation calms down.

It will not be such a strong move as observed in the recent weeks. I would not expect that the EUR/PLN and CHF/PLN can drop below 4.10 and 3.40 respectively.

Today, similarly to Tuesday's session no major changes are expected. Most transactions should be concluded around current level with the range not exceeding more than 1 zloty-cent in each way.

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

Range EUR/USD 1.2250-1.2350 1.2150-1.2250 1.2350-1.2450
Range EUR/PLN 4.1600-4.2000 4.1600-4.2000 4.1600-4.2000
Range USD/PLN 3.4600-3.5000 3.4600-3.5000 3.4600-3.5000
Range CHF/PLN 3.4600-3.5000 3.4600-3.5000 3.4600-3.5000

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

Range GBP/USD 1.5650-1.5750 1.5550-1.5650 1.5750-1.6850
Range GBP/PLN 5.2500-5.2900 5.2300-5.2700 5.2700-5.3100

10 Dec 2014 12:00|Marcin Lipka

This commentary is not a recommendation within the meaning of Regulation of the Minister of Finance of 19 October 2005. It has been prepared for information purposes only and should not serve as a basis for making any investment decisions. Neither the author nor the publisher can be held liable for investment decisions made on the basis of information contained in this commentary. Copying or duplicating this report without acknowledgement of the source is prohibited.

See also:

9 Dec 2014 17:18

Afternoon analysis 09.12.2014

9 Dec 2014 12:43

Daily analysis 09.12.2014

8 Dec 2014 17:06

Afternoon analysis 08.12.2014

8 Dec 2014 12:43

Daily analysis 08.12.2014

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