Daily analysis 04.11.2015

, author:

Marcin Lipka

The shares market and the events on the debt markets enforce the dollar and cause depreciation on the main currency pair. Statements of the Fed representatives and significant data for the further condition of the EUR/USD. The zloty is stable before the MPC meeting, and the new NBP projections.

Most important macro data (CET – Central European Time). Estimations of macro data are based on Bloomberg information, unless marked otherwise.

  • 14.15: The ADP report about employment in the USA (estimations: 180k).
  • 16.00: Press conference after the MPC meeting.
  • 16.00: The ISM for the American sector of services (estimations: 56.5 points).
  • 16.00: Testimony of Janet Yellen in the Chamber of Representatives, regarding the regulation of the financial system. It is not clear, whether there will be any time for the issues regarding the current monetary policy.
  • 20.30: Testimony of William Dudley from the Fed, regarding the economic situation.
  • approximately at midnight: Stanley Fisher’s testimony.

Markets of shares and bonds enforce the dollar

Even though yesterday we hardly received any macroeconomic data, some significant changes could be observed on the markets of shares and bonds. The S&P 500 enforced above the level of 2100 points, and is by only 1% below the historical records. Of course, this decreases the tension on the financial markets. But at the same time, it may suggest that investors have an optimistic attitude towards economic perspectives. Thus, this is an argument for the Fed to raise interest rates.

Movements on bonds are an even more significant signal. The profitability of the two-year treasury bonds approaches the level of 0.80%. This is the highest level for 5 years. Contracts for interest rates also show an increasing chance for hikes in December. According to yesterday's Bloomberg calculations, its probability currently stands at 52%.

Additionally, a difference between profitability of two-year treasury bonds from the USA and Germany, is also a significant index in the context of the condition of the EUR/USD. Among others, it may show the differences between future interest rates in both of these economies. Today, it is 1.1% (the profitability of the two-year debt in Germany is 0.33%), and it is the highest result since October 2006. This also causes pressure on the EUR/USD.

Testimonies and data

Usually a few days after the Fed meeting there is a wave of testimonies from particular members of the Federal Reserve. This is not a coincidence. It often offers an explanation of the matters regarding the monetary policy to the investors, in case the market does not understand the message of the latest announcement.

Testimonies of William Dudley and Stanley Fisher are most likely to cause a movement on the EUR/USD. Chairman of the New York Fed will speak about the economic matters, and will perhaps mention the monetary policy. Vice-president of the Federal Reserve, on the other hand, will have a chance to comment on the situation regarding interest rates. Additionally, the views of both of these members are coherent with the FOMC consensus, which only intensifies the tone of their statements.

We will probably not find out much about future interest rates from the testimony of Janet Yellen in the Chamber of Representatives. It will concern the regulation topics for the banking sector, although the congressmen will have an opportunity to ask questions about the current monetary policy of the Fed.

One can also not forget about today's macro readings. The ADP publications and component of employment in the ISM service index, will be significant in the context of the labour market. If the data regarding the labour market are coherent with expectations, the American economy creates 180k workplaces in the private sector, and the accelerating index of the non-industrial sector remains within the limits of 75 points, there is a chance to keep a positive trend on the dollar, and a test of the level of 1.0900.

Few words about the foreign market

Signals from the shares market and the debt market show that investors’ anticipation for this year's hikes in the USA increases. Additionally, they are not afraid of negative consequences for the capital market. This is a strong argument for the Fed to start the monetary tightening in December. This fact also translates to an enforcement of the dollar. Additionally, depreciation on the EUR/USD has a big chance of continuing, if today's data from the USA do not disappoint, and the FOMC members sustain the hawkish suggestion from the recent Fed announcement.

Before the MPC press conference

Today's press conference of chairman Belka after the MPC meeting, will be the most significant event on the national currency market. The announcement from the Council is unlikely to change, but investors are waiting for new macroeconomic projections from the latest report about inflation. If an increase in the GDP for 2016 is closer to 3.0% than 3.5%, and an increase in consumer prices is reduced (in comparison to July's estimations) from 1.5% below 1.3%, we can expect that the new monetary authorities will consider the cutting of interest rates in the first half of next year more seriously.

Contracts for interest rates have already estimated one decrease by 25 base case points in the perspective of the forthcoming 6 months. On the other hand, the Bank of America claims that a decrease in interest rates will occur in April 2016. Additionally, it will be supplemented by the program of cheap loans.

However, today's market reaction should be relatively moderate. The current Council is most likely to sustain the standpoint of a lack of a decrease in interest rates. The projection itself, even if its pessimistic, will not cause a clearer wear off on the PLN. Thus, the euro will probably still cost 4.25 PLN.

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

Range EUR/USD 1.0950-1.1050 1.1050-1.1150 1.0850-1.0950
Range EUR/PLN 4.2400-4.2800 4.2400-4.2800 4.2400-4.2800
Range USD/PLN 3.8600-3.9000 3.8200-3.8600 3.9000-3.9400
Range CHF/PLN 3.9000-3.9400 3.9000-3.9400 3.9000-3.9400

Anticipated GBP/PLN levels according to the GBP/USD rate:

Range GBP/USD 1.5350-1.5450 1.5250-1.5350 1.5450-1.5550
Range GBP/PLN 5.9200-5.9600 5.8800-5.9200 5.9600-6.0000

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 Sp. z o.o is prohibited.

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