Daily analysis 08.12.2014

, author:

Marcin Lipka

The US employment data pushed EUR/USD toward new lows. Shinzo Abe is certain to win the Sunday election. Norwegian krone – another victim of the low crude prices. Chojna-Duch and Zielinska-Glebocka on monetary policy. Polish currency is stable to the euro and franc but weaker to the US dollar.

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

  • No macro data which may significantly affect the analyzed pairs.

NPF supported the dollar, but odds for earlier increase are still slim

We can be pretty sure that 2014 will be the best period since 15 years for US job market. On Friday it turned out that the NFP rose 321k in November. The result was almost 100k higher than the median estimated collected by Bloomberg. Additionally, two previous readings were revised upwards in the sum of 44k. As a result the American economy has created almost 250k jobs this year what is the highest result since 1999.

Also, other parts of the BLS report were bullish. The wages increased by 0.4% m/m while the market participants expected a gain of 0.2%. Moreover, the structure of payrolls were “healthier” with significantly higher result in manufacturing. Only the actual rate of unemployment didn't change but the household survey was really strong in previous month, so the current data should not be a case of disappointment.

The news from across the pond were quickly priced in many assets. Besides stronger dollar there were also significant moves on the debt market. The yields on 2-years papers rose 10 bps from 0.55% do 0.65% and reached the highest level since April 2011 (we wrote more about the debt market on December 3rd). It is a confirmation that investors are strengthening their bets for mid 2015 year hike, and some even call for an earlier tightening.

Currently, however, despite that Friday's data were outstanding, it is hard to expect that the NPF may rise at 300k rate in following months. I would rather see it as a deviation in the solid trend. In that case the FOMC should not revise its monetary policy plans. The only major changed that we may observe in the December statement is probably erasing the “considerable time” phrase.

Abe's victory certain. The yen under pressure

The most recent opinion polls published by one of the Japanese major newspaper “Mainichi” are showing that the ruling liberal democratic party (LDP) may receive more than 300 out of 475 seats in the lower house of the parliament. It means that after the Sunday election Shinzo Abe and his coalition partner may even have a stronger mandate than they currently hold. In the medium and long term it is a negative message for the yen.

But Friday's yen slide was mainly a result of stronger dollar after the NPF hit the wires. As a result it ended last week above 121 mark. Taking into the account the overall speed of the Japanese currency depreciation we should not rule out that it can hit a new 13-year low as early as in December (124) especially when the Abe victory is stronger than the polls estimate.

11-year low test is possible

Widely commented negative impact from sliding oil prices on the rouble is not limited to our east neighbor. The Norwegian currency is also feeling the pain after the Bent slumped to 5-year lows. Oil sector contribute almost half of the revenue to the Oslo export so it is a strong argument to sell the krone. It may be also possible that the USD/NOK will hit more than 10-year high (7.30) especially that it is only two percent below that level.

Theoretically, similarly to the Russian example, the Norway government may be interested in keeping the krone fairly weak to compensate some revenue cut from oil slide with lower value of local currency. On the other hand, we should not expect that the commodity slump will be a major blow to the Nordic country. 5 million Norwegians hold public wealth fund worth around 1 trillion USD. From a simple math we may conclude that every citizen is entitled to around 200k USD. Russia also has a similar project funded by the oil revenue export, but every citizen collected only 1500 USD on average.

In a few sentences

The EUR/USD has probably priced in all the US jobs data impact and the 1.2250 level is a good starting point for the further signals. In short term, when Fed official comment the NFP data we may see some rebound on the euro-dollar. But in the medium horizon there is still a significant pressure on the most heavily traded pair with a target at 1.20 even before any major changes in Fed's or ECB policy occur.

Stable zloty

Currencies in CEE region are stable both to the euro and the franc. The ECB accommodative monetary policy, SNB floor on the EUR/CHF and neutral rate policy in Poland are keeping EUR/PLN and CHF/PLN around the current levels.

Regarding the monetary policy we had two comments from the MPC members. Elzbieta-Chojna Duch told PAP that the deflation we last till March of 2015. However, the negative CPI is “imported” and “temporary”. As a result, it cannot be addressed by the MPC decision. Chojna-Duch also claims that the predicted growth slowdown may be at lower magnitude that previously expected.

On the other hand, Zielinska-Glebocka during an interview with Bloomberg was a bit more pessimistic than her colleague. She claims that the price pressure may translate into a lower demand and cause a negative impact on growth. However, Zielinska-Glebocka didn't want to elaborate more on her plans toward rate decisions.

In the current MPC composition it is virtually not possible, with opposition from Hausner and Chojna-Duch, to cut the interest rate. As a result the current benchmark will be unchanged for at least 2-3 months and we should not rule out the scenario that “credit cost” remains unchanged for much longer.

Today the zloty should remain fairly stable. The EUR/PLN and CHF/PLN are not expected to change by more than 0.01PLN. We may have more volatility on USD/PLN but the 3.40 level should be breached.

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

Range EUR/USD 1.2250-1.2350 1.2150-1.2250 1.2350-1.2450
Range EUR/PLN 4.1600-4.2000 4.1600-4.2000 4.1600-4.2000
Range USD/PLN 3.4600-3.5000 3.4600-3.5000 3.4600-3.5000
Range CHF/PLN 3.4600-3.5000 3.4600-3.5000 3.4600-3.5000

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

Range GBP/USD 1.5650-1.5750 1.5550-1.5650 1.5750-1.6850
Range GBP/PLN 5.2500-5.2900 5.2300-5.2700 5.2700-5.3100

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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