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Daily analysis 05.05.2014

, author:

Marcin Lipka

Wednesday's inflation from Euro Zone and Friday's report from American labor market were not crucial for EUR/USD. First FOMC comment after the payrolls. Weak PMI from Poland and maintaining uncertain situation in Ukraine still lay weight on zloty.

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

  • 16.00 CET: Service ISM from the American economy.

Inflation. Labour market. Fisher

In the past week we had a real flood of macro data. However, two figures were most important for the EUR/USD market: Euro Zone inflation (which is supposed to bring closer the answer to the question about the decisions that ECB can undertake during upcoming summits) and the situation on the American labor market. When it comes to the first figure, Tuesday's readings from Germany had already shown that we are rather unlikely to reach the planned 0.8% of HICP increase in the area of common currency. That is what actually happened. The inflation in the Euro Zone took off only up to 0.7% r/r and it is still by approximately 1% below ECB goal. Thus it is still a strong argument for monetary policy easing, even when we consider the situation of Euro Zone slowly getting out of many years long stagnation (in this month we are above the limit of 50 in all eight countries in which the industrial PMI surveys are being held for the first time since 2007). We will find out how Mario Draghi and his co-workers see this situation, after Thursday's ECB summit (probably no crucial decisions will be made but the chairman's statements getting us closer or further from monetary policy's easing itself should be important).

Friday's report from American labor market looked fairly interesting. The US economy produced 288 thousand new jobs in non-agricultural sector (approximately 70 thousand more than predicted) in April. Additionally, the readings from previous two months have been revised upwards by over 30 thousand. The data of the US Department of Labor that embrace the household surveys was not that unambiguous, though. Descend of unemployment to the level of 6.3% (forecasts of 6.6%) was a result of participation index's decrease (a relation of those who are employed and are searching for job, to those who are in working age). Apart from that the BLS report results say that the wages increase still does not occur, what could mean faster than expected return of inflation to its goal and tightening of Fed ultra mild monetary policy. In result, after initial enforcement of the dollar we have quickly observed the return of main currency pair to the levels from the state before the data. Does such behaviour of market participants' have a logical explanation if the BLS data were good?

An answer to this question could be the Sunday interview with Richard Fisher for the Fox News. Chairman of Federal Reserve from Dallas, despite his hawkish approach, does not think that the good data from the labor market could accelerate the tempo of exiting from QE (he expects the ending of this operation in October). Also Fisher does not want to predict the moment of monetary policy's tightening, suggesting that only after exiting the assets' purchasing and “economy's review” Fed will consider changing the money rates. Could it be that some hawkish part of the FOMC are more willing to raise the rates as late as in mid-2015?

In conclusion, most of recent week's macro reports supported the weakening of EUR/USD. However, it had not occurred, what may result in new peaks if ECB will not change the main parameters of its policy.

Weak PMI and Ukraine

Friday's publication of industrial PMI from Poland was a negative element on the zloty's market. “Purchasing Managers Index” elaborated by Markit and HSBC weakened to the lowest level since June 2013 and amounted 52 points, whilst the forecasts assumed the readings in limits of 54. Despite us still being above the level separating development from recourse, there was a slowdown of increase of majority of index's elements (number of orders, export, employment and purchase activity). In her comment to these data, Agata Urbańska-Giner, HSBC economist for Mid-eastern Europe, said that “PMI can indicate the upcoming consolidation of economic growth after its clear acceleration in 2013”. Additionally, it is worth to notice that if the consolidation of economic indexes occurs on its current level, it will be difficult to expect this year's GDP increase close to 4% so the inflation pressure will also remain very moderate. It should result in MPC maintaining the current monetary policy, even for upcoming 12 months (a negative factor for PLN).

During recent days there was a significant increase of victims in Ukraine (events in Odessa). One of the events, however, may be paradoxically allowing all sides of the conflict to get closer to elaborating the solutions that will ease the tension and by that also decrease the uncertainty in the region. The presidential elections planned on May 25th are still an element of risk. Their holding, as well as their results, can ignite further riots and provocations.

In conclusion, the national data, as well as the geopolitical environment, are not supportive for PLN. In the upcoming days we should rather be above the limit of 4.20 (even 4.22-4.23) than count on a clear enforcement (below 4.18). The similar situation concerns also CHF/PLN, which will rather fluctuate in limits of 3.45 with a bigger chance for 0.02-0.03 PLN growths than falls.

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

Range EUR/USD 1.3750-1.3850 1.3850-1.3950 1.3650-1.3750
Range EUR/PLN 4.1800-4.2200 4.1800-4.2200 4.1800-4.2200
Range USD/PLN 3.0300-3.0700 3.0100-3.0500 3.0600-3.0800
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 1.6650-1.6750 1.6750-1.6850 1.6550-1.6650
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 Cinkciarz.pl Sp. z o.o is prohibited.

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