Daily analysis 07.12.2015

, author:

Marcin Lipka

Mario Draghi during the New York speech wanted to show a dovish sight of the ECB. OPEC decision might have significant consequences for the rouble or the Canadian dollar. The zloty remains weak, but odds for higher volatility are limited.

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

  • No major economic data that might affect analysed pairs.

Another attempt from Draghi

Friday's session was not only important due to monthly job report report from the US. The attention was also brought by Mario Draghi speech in New York where he wanted again to put some more emphasis on the monetary policy.

Between the ECB conference in Frankfurt and Draghi's speech in the States was around 24h gap. Investors were still trying to evaluate the fact that European MPC failed to meet market expectations and left the monthly bond purchase on unchanged level. However, it is worth noting that the speech was well prepared and may be used as a backstop to further euro appreciation or rise of bond yields in the single currency area.

The ECB chief mainly focused on inflation issues both in Europe and in the US. On our continent the low price growth came mainly from domestic reasons (low wage growth, high unemployment) and only from three quarters it comes from lower commodities which were pushing the CPI lower. On the other hand in the US domestic inflation is markedly positive since six quarters. It is one of the signs how economic cycles differ between this two currency areas.

From the mentioned issues there are also findings for the monetary policy. Draghi said that “There cannot be any limit to how far we are willing to deploy our instruments, within our mandate, and to achieve our mandate”. “But there is no doubt that if we had to intensify the use of our instruments to ensure that we achieve our price stability mandate, we would” the ECB chief noted.

Mario Draghi during his Friday's speech wanted clearly suggested the ECB is very dovish even though the central bank failed to meet market expectations during the last meeting. He wanted to also to transfer a clear message that the QE might be increased in any moment if there is a need to boos the monetary easing.

On the other hand there is one simple question. Is the market ready to believe in this promises shortly after the ECB failed to meet expectations. In the near future investors would be probably reluctant to both regarding selling the currency or buying it. It is possible that levels around 1.08 on the EUR/USD would be a good starting point especially before the Fed's meeting scheduled for mid December.

The OPEC and currencies

On Friday the OPEC meeting was concluded. During the week there were many rumours that the cartel mail react to falling prices and curb some output due to lower prices and higher production from Iran.

However, finally it turned out that the OPEC resigned to set any particular output goal. Moreover comments from Iranian or Iraqi officials confirm this message. According to Bloomberg Bijan Namdar Zanganeh said that “everyone does whatever want”. “Americans don't have any ceiling, Russians don't have any ceiling, why should OPEC have a ceiling?

No control of the output from the cartel may clearly mean that everyone produces with no limit. It should create significant pressure on the prices in the coming weeks. On the other hand it should speed up the results of Saudi Arabia strategy to push the higher cost producers out of the market and rebalance the market in the medium term with final effect which is higher prices.

Currencies most prone to falling crude prices are rouble and Canadian dollar (CAD). The Russian currency lost in the month around 6% of value and the 70 mark on USD/RUB is getting more real. Only slightly above 11-year lows is the CAD to the USD. If the pressure on the oil remains both currencies should continue the slide.

The foreign market in few sentences

There are no significant macroeconomic reports in the incoming hours. Additionally after last week volatility the market is probably going to refrain from higher volatility. As a result the session should be much calmer and the levels around 1.08 on the EUR/USD should be a good starting point before the December Fed's meeting.

No signals so far

The zloty remains weak. Besides global issues which pushes the assets lower in the region the currency is also under pressure from local uncertainties – both fiscal and monetary policy. Due to the fact that mentioned problems are not going to be resolved soon there are risks that the euro may remain above 4.30 and the franc around 4.00.

However, if it turns out that threats regarding the budget are overstated and new MPC will not be as dovish as expected it is possible that the zloty can pare some of the most recent losses and the EUR/PLN could slide toward 4.25 while franc slide to 3.90.

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

Range EUR/USD 1.0550-1.0650 1.0650-1.0750 1.0450-1.0550
Range EUR/PLN 4.2600-4.3000 4.2600-4.3000 4.2600-4.3000
Range USD/PLN 4.0000-4,0400 3.9600-4.0000 4.0400-4.0800
Range CHF/PLN 1.4950-1.5050 1.4850-1.4950 1.5050-1.5150

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

Range GBP/USD 1.4950-1.5050 1.4850-1.4950 1.5050-1.5150
Range GBP/PLN 6.0400-6.0800 6.0000-6.0400 6.0800-6.1200

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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