Daily analysis 07.08.2015

, author:

Marcin Lipka

The US job's data are key to the dollar performance in the following days. Despite the fact that “payrolls” have high standard error the market is set to react. The zloty remains stable but the US Labor Department publication may change it.

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

  • 14.30: Non-farm payrolls change in the US (survey: +225 k).
  • 14.30: Unemployment rate in the US (survey: 5,3%).
  • 14.30: Average wage change (survey: +0.2% m/m and +2.3% y/y).

Key data from the Fed

The following days were characterized by a high degree of market nervousness. Investors weren't able to decide whether the hawkish Dennis Lockhart interview for “The Wall Street Journal” or more neutral comments from Jerome Powell on CNBC were more important. Additionally, it was unclear whether the market believes more in the weak ADP or solid ISM publication.

As a result, the market returned to the starting point on the EUR/USD – around 1.0900. The Labor Department data is expected to be the most important set of readings. The job's market is also going to be the main argument either for supporters of more hawkish or dovish monetary strategy.

As we wrote yesterday, any readings below 200k combined with downward revisions of at least 30k should be regarded as an argument to lengthen the zero-rate monetary policy and push the dollar lower. The larger the difference between the expectations and the official reading, the more severe the reaction is expected to be on the EUR/USD.

On the other hand, if the NFP reading is above 250k, which will be additionally combined with the upward revision of at least 20 - 30k, should generate a significant appreciation of the dollar and push the EUR/USD even below 1.08.

The range in Bloomberg survey looks quite wide – from 140k to 310k. Three top economists from IHS Global Insight, IDEA global and Morgan Stanley expect 200k, 210k and 200k respectively. Overall it is really hard to predict the real number. The reading is a statistical probe which is additionally seasonally adjusted. As the Labour Department writes the 90% confidence interval is +/- 105k. It means that the first reading can generate a biased number. Additionally, we have to add the mistakes in estimates from economists. Finally, we have to always remember that the single readings may markedly deviate from the real job picture and from surveys.

The statistical issues do not change the investors’ behaviour and the fact that the data is widely observed by investors. If the publication turns out to be close to the estimates investors should focus on wage growth - higher should push the EUR/USD lower.

Summarizing, the NFP is volatile and hard to predict the number but can still generate a high degree of volatility. Additionally, FX operates extremely quickly, especially keeping in mind the most recent comments from the Fed.

The foreign market in a few sentences

The guessing game regarding NFP is expected to be more intense than usual. It is a result of the mixed publications from the US and Federal Reserve members comments. The Labor Department data is expected to give a strong argument to either hike interest rates in September or December. In the afternoon, we have however only one guarantee – the high level of volatility regardless of the outcome.

Calm on the zloty

Around midday the EUR/PLN is being traded at around 4.18. It is a good starting point before the US data hit the wire. If payrolls turn out to be sold, we may see both the dollar and euro higher. It is even possible that the European currency can hit 4.20 and the US top 3.90 PLN. In case of a weak (below 150k) publication the EUR/PLN can even slide to around 4.16, and the USD/PLN to 3.75.

Calmer trading on the zloty brings some benefits to CHF debtors who are starting to benefit from the lower valuation of the Swiss franc on the global market. It pushes the CHF/PLN below 3.90. If the US data turns out to be weak, the CHF may even drop 2-3 zloty cents.

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

Range EUR/USD 1.0850-1.0950 1.0750-1.0850 1.0950-1.1050
Range EUR/PLN 4.1600-4.2000 4.1600-4.2000 4.1600-4.2000
Range USD/PLN 3.8200-3.8600 3.8600-3.9000 3.7800-3.8200
Range CHF/PLN 3.9000-3.9400 3.9000-3.9400 3.9000-3.9400

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

Range GBP/USD 1.5550-1.5650 1.5450-1.5550 1.5650-1.5750
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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