Daily analysis 07.04.2015

, author:

Marcin Lipka

The market has still been evaluating the US Labour Department data. The FOMC member comments after the most recent “payrolls”. Another leak before the RBA rate decision? The zloty, after Monday's volatile trading, returns to 4.06 per euro.

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

  • No major economic data which may affect the analysed currency pairrs

The picture after “payroll” data

The US Labour Department readings failed to meet expectations. The US economy created only 126k new jobs while market consensus was around +250k. Additionally, the data from the last two months was revised downwards by almost 70k pushing the 3-month average below 200k. There is one question on investors' minds: has the recent slowdown been caused by the transitory factors or has it been a part of the broader economic weakness?

It is much more probable that Q1 weakness is mostly related to harsh weather and strikes on the West Coast. As a result, it should not push the expectations regarding interest rates significantly into the future. However, if we look to the probability of a first interest rate hike the odds for a September hike have dropped in 3 weeks from 50% to 30%. Currently, the money market seems to position for the December meeting.

On the other hand, the expectations from the Federal Reserve members haven't changed that much. William Dudley didn't elaborate on the payrolls but claimed that the hikes would be “shallow” and lowered his GDP growth expectations to 1% on an annualized basis. Some comments were also published by Dennis Lockhart. The Atlanta Fed's president does not see significant changes in his monetary tightening schedule, but the June date appears to be unlikely.

Inconsistent messages are coming not only from members of the Fed or the money market, but also from the economy. Last week, the manufacturing ISM hit a one year low, and its employment sub index registered the third weakest reading since 2009. The opposite picture was presented by its services counterpart. The non-manufacturing ISM remained around 56.5, and its jobs related part was also close to historical highs.

The upcoming days should be quite important regarding the future situation of the EUR/USD. If the market gets more confident about the recent slowdown as only being a transitory factor, the most heavily traded currency pair should return to the sliding trend. However, the depreciation may not be as fast as that observed in Q1. Conflictingly, if the economic reports in the following weeks confirm that the slowdown is more persistent the probability for longer correction should markedly increase.

Another RBA leak?

In the morning, the Australian MPC announced its decision on interest rates. The market expected either a cut, or leaving interest rates unchanged. The RBA chose the latter, but in the statement there is a clear suggestion that the cut is possible in the following months.

But the announced decision was the most interesting part. It was the third time in a row when the currency market moved in the right direction, before an actual decision hit the wire. The security exchange commission is already running an investigation, due to similar moves observed in the recent months. What is even more interesting, two people were already charged for insider trading last year. One of them was employed for the Statistical Office, while the other worked for a bank.

The foreign market in a few sentences

The market is clearly unable to make up its mind. The most recent readings are weak, but they should not significantly disturb the FOMC decision process, unless they transfer into the second quarter. Additionally, Greece is still in the news, and the resolution for Athens is not expected in the following days. From the market’s point of view, a failure to continue the correction should quickly translate into new lows. As a result, the following days might be crucial for the EUR/USD direction for the upcoming weeks.

Greece and “minutes”

Monday's trading on the zloty was quite chaotic. The EUR/PLN spread was even 200 pips, which clearly means that few buyers or sellers wanted to process transactions. As a result, the euro jump to the level of 4.08 should not be considered as the beginning of a correction of the recent sliding trend.

In the morning, the situation went back to normal, and the EUR/PLN dropped to 4.06. The current week macroeconomic calendar is empty, so any signals for the zloty should come from the broader market. The most important matters are the Greek issue and the FOMC “minutes”.

If Athens get the next tranche of bailout money until April 24th and the “minutes” significantly focus on strong dollar and weak global economy, there is a high probability that the EUR/PLN may drop to 4.00 this month. Contrarily, as an opposite scenario, investors should expect a correction to around 4.10.

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

Range EUR/USD 1.0750-1.0850 1.0650-1.0750 1.0850-1.0950
Range EUR/PLN 4.0600-4.1000 4.0600-4.1000 4.0600-4.1000
Range USD/PLN 3.7400-3.7800 3.7800-3.8200 3.7000-3.7400
Range CHF/PLN 3.8700-3.9100 3.8700-3.9100 3.8700-3.9100

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

Range GBP/USD 1.4850-1.4950 1.4750-1.4850 1.4950-1.5050
Range GBP/PLN 5.6000-5.6400 5.5600-5.6000 5.6200-5.6600

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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