Daily analysis 11.09.2014:
“Better together” campaign brings more attention. New opinion polls favors the “no” camp. Increasing probability of permanent solution in the East. The risk of negative interest rate pushes the Swiss franc lower. The EUR/PLN returns below 4.20.
Macro data (CET- Central European Time). Survey is supplied by Bloomberg unless otherwise noted.
- 14.30 CET: Weekly jobless claims from the US (survey 300k).
Scotland. Ukraine. The franc
Regarding lack of macroeconomic data and experiencing a “waiting mode” before the next week Federal Reserve meeting (conference + new projections), the market is still focused on one issue – Scottish voting.
Recent hours have clearly favored the “no” camp. First of all, a new opinion poll was published yesterday. According to the Survation and Daily Record, Scots who want to remain in the union lead by 6 percentage points. Additionally, it is worth noting that the gap didn't change from the previous Survation report while in other opinion polls the difference significantly shrank.
The reaction was seen on the pound immediately and the GBP/USD rose above 1.6200 level. Not only the surveys were favorable for the cable. We were observing a strong push from the government to keep in UK in one piece. David Cameron during his visit to Edinburgh stressed the importance of more than 300 years “family” between Scotland and the UK and even emphasized cooperation during the Second World War.
For those who are less sentimental financial arguments may be more effective. Both RBS and Lloyds bank are planning to move their headquarters from Scotland to England. It is a result of at least two issues. Firstly, both institutions were bailed out by the government (British taxpayers) during the crises so it is hard to leave them in Scotland. Moreover a hypothetical capital flight out of the new country could have threatened the cots of obtain funding and cause some operational problems.
The Bank of England is also getting more vocal regarding the issue. Mark Carny warned that Scotland may have to pay the price for its independence. He claims that a new central bank would need over 100 billion pounds in currency reserves. To accumulate such amount of money Edinburgh would have to enjoy a heavy current account surplus or at least capital inflow. Regarding the first requirement it is hard to judge how the C/A is going to look like especially that we still don't know how the oil exploration will be shared. The latter is even more questionable taking into the account that most economists expect the capital outflow rather than the inflow.
Even the energy-related companies are getting more involved in the voting. Both Shell and BP report that oil reserves announced by the “yes” supporters are overestimated. BP additionally issued as statement supporting the “integrity of the United Kingdom”.
It is possible that a “mass campaign” against the separation may be successful. If most Scots vote “no” next Thursday, the cable can quickly climb above 1.65 and the pound-zloty should top 5.35 level.
There are fewer reports in news agencies regarding Ukraine which should confirm that the ceasefire in the east is holding. Moreover, according to the Kremlin website between September 6th and 9th Poroshenko and Putin spoke three times. As a result, we may assume that both leasers are trying to form a peace plan which should be acceptable for Kiev, Moscow and Donbas.
Another element confirming deescalation of the conflict is a statement form Ukrainian president who said that most Russian soldiers fighting for the rebels' side were withdrawn from the East. The tension seem to be eased also in the EU which is not keen to announce new sanctions. Additionally, “The Wall Street Journal” reported that event those countries which would like to put more restrictions on the trade between the Union and Russia (the UK, Germany and Poland) claim that “the bloc should enact the sanctions as promised by lay out clear conditions which they could be rolled back”.
More volatility was observed on EUR/CHF yesterday. The “WSJ” published yesterday a short statement from Thomas Moser (alternative SNB member) that negative interest rates may be introduced if the situation requires such action. When the information hit the wires the EUR/CHF rose above 1.2100. The reaction was also visible on CHF/PLN which dropped around one zloty-cent. For stronger movements we will have to wait for the SNB meeting (September 16-17th).
Summarizing, we will probably have to deal with the Scottish voting for at least next week and the opinion polls results are supposed to shape the pound condition. It is worth noting, however, that the odds for independence dropped significantly during last 24 hours. Regarding the EUR/USD we should not test the new lows soon due to market positioning before another key event – next week Federal Reserve meeting.
Rage trade on the zloty
After some turmoil at the beginning of the week caused by rumors of sooner-than-expected interest rate hike in the US (San Francisco Fed paper on too dovish approach of the market) and sell-off on the EM currencies, the EUR/PLN trade has stabilized and we returned below 4.20 level.
The news to support the zloty may come from Ukraine. Probably next week a new plan regarding Donbas future will be presented by Kiev. Taking into account recent intensive talks between Poroshenko and Putin it is possible that the document can be accepted for all sides of the conflict. In line with ultra-dovish monetary policy from the ECB the zloty should be traded close to the current levels with some appreciation bias pushing the EUR/PLN firstly toward 4.17 and then 4.15 per the euro (the return of scenario presented at the beginning of the week).
Today we should observe a calm trading around 4.19 level for the euro and 3.47 per the Swiss franc. More volatility is expected on the GBP/PLN where any new opinion poll concerning the Scottish independence may cause significant moves.
Expected levels of PLN according to the EUR/USD rate:
Expected GBP/PLN levels according to the GBP/PLN rate:
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