Daily analysis 05.03.2014

, author:

Marcin Lipka

Slight EUR/USD weakening before the upcoming data. What was the reason for such positive reaction on Putin's press conference? Thursday should bring answers to the questions about ECB suspending SMP program sterilization. A conference will be held today after MPC summit. Perhaps apart from new estimations of GDP increases and inflation, president Belka will refer to his Monday's statements about euro.

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

  • 14.15 CET: ADP report from American labor market (survey: 150k).
  • 16.00 CET: Service ISM from USA (survey: 53.5).

Before the data. Putin. ECB

During recent hours the currency market has been stabilizing minimally below the levels of yesterday's opening. EUR/USD fell by over a dozen pips below the limit of 1.3750. It is mainly a result of slight anxiety of upcoming macroeconomic reports. Today the market participants will receive a foretaste of crucial publications, which are planned for the second part of the week (ECB on Thursday, and NFP on Friday). Despite the ADP weak forecasts of payrolls' behaviour during recent months, both indexes overlap in the long run. That is why the dollar supporters (at least the short-ter mones) may quickly proceed to purchasing if at 14.15 we will witness the reading, which is significantly higher than forecasts (over 200k). Publication of service sector's ISM will not be without meaning. On Monday its industrial equivalent was higher than the forecasts, although subindexes undertone was mixed (weather influences or slowdowns from year's beginning). We will see if the situation will be similar today. Market's reaction for the data should be standard – publications from over the ocean above the consensus will rather strengthen the dollar, and the worse ones – weaken it.

Some market's participants could be astonished by a positive reaction of market related assets after yesterday's Putin's speech. However, there are few elements which really dismiss the scenario most feared by the investors: the military intervention. First of all, Russia's president agreed to the plan of international observers' entrance on Crimea (probably from OSCE). Second of all, he admitted (between the lines, but still), that the government (on the contrary to the president) in Kiev, has a mandate to be in power, and the prime minister Miedwiediew is in touch with him. As it is clearly seen, Russia agrees to participating in help for Ukraine within IMF. Putting aside all typically political matters pointed in the direction of his own society, showing how strong a leader Putin is and also provocative signals addressed to the West, one can really admit that yesterday's conference should decrease the tension. Additionally, Russia's president presented his point of view(of course different from the ones presented by EU and USA) on Ukrainian events. We will refer to it while judging how the future events will correspond with Putin's words.

Very important summit of ECB will be held on Thursday. It will show if Mario Draghi and his colleagues (after getting familiar with the latest macroeconomic projections) will decide on loosening the monetary policy (negative for Euro) or leave the interest rates unchanged. Brian Blackstone introduced an interesting analysis in context of tomorrow's ECB decisions, which was published in “The Wall Street Journal”. Especially the consequences of possible SMP program's (constant collection of fluency from the market, which was created after buying the securities of peripheral countries during crisis' culmination) sterilization ceasing are wortth paying attention to. Blackstone points out that if ECB will decide to suspend the sterilization (which means executing QE at the amount of approximately 170 billion EUR – author's footnote), it can significantly decrease the credibility of central bank. That may cause e.g. the decrease of force of communicate about “maintaining money rates on ultra low level for a longer time” (although rather when inflation begins to increase – author's footnote). The other consequence (which will meet with much faster markets' reaction) can also be slow “softening” of ECB negative approach towards quantitative easing. If this would happen, Euro could find itself under a serious pressure.

In conclusion, the upcoming days should belong to macro data. Only decisive deterioration of moods on the East could disturb the undertone of macro data, especially those published tomorrow or on Friday.

Increased meaning of today's conference

The zloty stabilizes slightly below the level of 4.20 per Euro. However, it is worth noticing that the Polish currency is one of the most susceptible to the turbulences in the East. That is why even a small deterioration of the situation, may push EUR/PLN up. However, in case of geopolitical sentiment's improvement in the region, we should slowly make our way towards 4.15.

Today's conference after MPC summit will be interesting for at least two reasons. We will see how the Council is influenced by new macroeconomic projections of NBP (will the forward guidance be increased or will this decision be postponed until April). Another interesting thing will be the way in which the chairman of NBP, Marek Belka refers to his Monday's statement about Poland's approach towards Euro Zone in the light of the Ukrainian issues (theoretically, if the NBP chairman would really become a supporter of Poland's faster connection with EMU, it should be a positive signal for PLN).

The Zloty's market during the hours to come should be calm. If we will not receive any new, dramatic information from behind the eastern boarder, we should expect EUR/PLN remaining below 4.20. The only variabilities increase might be observed in the areas of macro data from USA or the chairman's conference.

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

Range EUR/USD 1.3550-1.3650 1.3650-1.3750 1.3450-1.3550
Range EUR/PLN 4.1600-4.2000 4.1600-4.2000 4.1600-4.2000
Range USD/PLN 3.0500-3.0900 3.0300-3.0700 3.0800-3.1200
Range CHF/PLN 3.4200-3.4600 3.4200-3.4600 3.4200-3.4600

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

Range GBP/USD 1.6450-1.6550 1.6550-1.6650 1.6350-1.6450
Range GBP/PLN 5.0500-5.0900 5.0700-5.1100 5.0300-5.0700

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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