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Daily analysis 03.12.2013

, author:

Marcin Lipka

The data form Europe and the US pushed the most traded currency pair lower, but the EUR/USD is gaining some ground at the beginning of the session. Interesting Reuters analysis on “forward guidance”. The Polish zloty firstly strengthened slightly due to solid PMI reading but during the American session it gave up most of the gains on strong ISM reading.

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

  • Besides the market consensus we are also publishing the consensus range. It gives more info how economists predict the incoming data and what kind of impact can be generated from surprising reports.
  • No macroeconomic data which can significantly affect the analysed pairs.

Bearish data for the EUR/USD. Reuters analysis

Macroeconomic reports published yesterday mostly favoured the sellers on the EUR/USD. The ground-breaking moment was PMI reading from Spain which plummeted to 48.6 level (under 50 which separates expansion from contraction). In result 2 out of 4 largest European countries are signalling slowdown in manufacturing (France and previously mentioned Spain). If such data is continued in the following months we can expect downward revision for 2014 euro area growth. Moreover, the ISM index from the US turned out to the the strongest in more than 2 years. The Institute for Supply Management published that PMI increased to 57.3 points from 56.4 (expectations were at 55.5 with the consensus range from 52 to 56.7). Additionally the growth were observed in most important sub-indexes – new orders (63.6), production (62.8), employment – which is also observed regarding the Fed's tapering – (56.5). The data should clearly bring the FOMC much closer to the asset purchase reduction in December (if such decision is truly discussed and it is not only a Fed's strategy).

Reuters published an interesting article on forward guidance - “Fed unlikely to redraw markets for rate hike”. The authors firstly describe how the unconventional policy is set and whether it is successful (one of the recent research on the topic: http://www.newyorkfed.org/research/staff_reports/sr652.pdf ). Ann Saphir and Jonathan Spicer wrote that “minutes from the Fed's October 29-30 policy-setting meeting suggest that aside from Charles Evans, president of the Chicago Federal Reserve Bank, and Minneapolis Fed chief Narayana Kocherlakota, there is little enthusiasm for reducing the unemployment threshold”. It can mean that there is not enough support to lower the unemployment threshold – for example from 6.5% to 5.5%. Moreover, according to authors, there is also a low probability that the inflation threshold will be moved claiming that “James Bullard, the St. Louis Fed president, who has called for adding a pledge to keep rates low as long inflation lingers below a certain floor, has a "few" like-minded thinkers among his colleagues, the Fed minutes show”. If the Reuters analysis turns out to be truth we can imagine that after the tapering the dollar should significantly increase its value.

Summarizing, the EUR/USD is getting more reasons to be under a selling pressure. Ultimately, however, investors will be waiting for the Friday's jobs data and December Fed's meeting. Today, the common currency is attempting to regain its value but a comeback above 1.3600 is unlikely.

The zloty is the narrow range trend

The zloty was slightly stronger after a solid Purchasing Managers' Index readings complied by Markit and HSBC. Later, however, the Polish currency gave up most of its gains due to record-high ISM data from the US. On the other hand the trading was really in the narrow range (0.01 PLN) and the changes were insignificant in the longer run. We can expect that actually there is only one event on the horizon which can spur stronger moves on the PLN – Fed's decision on tapering in December (bearish for the zloty and in short-term in can even move the local currency to 4.30 per the euro) or keeping the asset purchase in the full scale till at lest March 2014 which should give a boos to the Polish currency to around 4.15-4.10 to the euro.

Today the PLN will be probably traded around 4.20 to the euro. No major changes are also expected to the other leading currencies. The British pound, the dollar and the Swiss franc should remain stable to the zloty.

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

Range EUR/USD 1.3450-1.3550 1.3550-1.3650 1.3350-1.3450
Range EUR/PLN 4.1600-4.2000 4.1600-4.2000 4.1600-4.2000
Range USD/PLN 3.0800-3.1200 3.0500-3.0900 3.1100-3.1500
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 1.6250-1.6350 1.6350-1.6450 1.6150-1.6250
Range GBP/PLN 5.0100-5.0500 5.0300-5.0700 4.9900-5.0300

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 the written permission from Cinkciarz.pl Sp. z o.o is prohibited.

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