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Daily analysis 09.06.2015

, author:

Marcin Lipka

The EUR/USD keeps yesterday's gains but reasons behind its appreciation seems to be weak. The new Greek proposal will be rejected by creditors. The zloty remains under pressure from external issues and the EUR/PLN stays around 4.17. The election effect has disappeared.

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

  • No macro data that may affect the analysed pairs.

Second life for the rumour

On Monday we wrote about the French official who claimed that President Obama called the strong dollar a problem during the G7 Summit. Despite the fact that the White House quickly denied the rumours the message is still present on the market.

As a result, some investors who opened short positions on the EUR/USD after solid NFP data on Friday were squeezed out of the market. This situation pushed the most heavily traded currency pair further North.

Consequently, more rumours are hovering around the market claiming that one good set of data from the Labour Department would not change the overall perception that the Fed is going to be dovish next week. Additionally, there is still an issue with the narrowing of the spread between German and US debt which reduces the attractiveness of carry trade.

Despite the fact that the higher EUR/USD has rather flawed arguments, it may stay on the stronger side until the Federal Reserve meeting is concluded next Wednesday. If it turns out that the FOMC remains fairly dovish, reduces the path of interest rate hikes, and lowers significantly economic growth with leaving the inflation low, the dollar sell off may continue.

Greece's strange move

Before the afternoon Greece sent another proposal to its creditors. This time the idea presented by Athens looks very naïve. The Hellenic Republic would like to lift the ban on its treasury notes issuance. The problem is that short term bonds are bought by local commercial banks and then used as collateral in the repo agreements with the ECB. It means that actually lifting the ban would mean that all additional risk would be translated to the European monetary authorities.

The second proposal is also unacceptable. Greece would like to use the ESM funds to repay its debt to the ECB. So, Athens would like to use the funds from one of its creditors to pay back another creditor. It is interesting whether Greece will get an answer regarding this proposal.

The foreign market in a few sentences

There is another session with no major economic data. The market will probably be focused on the condition of the German debt which yields a bit lower today, pushing also the EUR/USD slightly south. Yesterday's rumours on the “strong dollar” give the EUR/USD at least a 100 pip premium. But it may be quickly corrected if the tighter spread between German and US bond yields pauses.

The zloty remains weak

The Polish currency mostly depends on external issues. The risk aversion caused by fears about Greece and the second elections in Turkey combined with some weaker readings from the local economy took its toll on the zloty.

The election issue has disappeared from the zloty valuation. If we compare the PLN and HUF traded and that both currencies are at the same level, as was observed on May 1st when no surprising election outcome was known. It means that the situation will return to normal if we consider the normality when both currencies trade in high positive correlation.

The zloty and the forint against the euro

Chart

  • Source: Bloomberg, own calculation (update: June 9).
  • The chart presents the PLN/EUR pair (white line) and HUF/EUR (yellow line). The fall means the weakening of the PLN or HUF against the euro. The chart has been normalised to the value of 100 in the beginning of May in order to fully present the surprising outcome of the presidential election. The zloty weakened in relation to the forint by around 0.5 percent in time of the political change. However, now this effect is vanished and both currencies lost about 3 percent against the euro since May 1.

The weaker zloty should remain until at least two issues are concluded – Greece and the Turkish election. To see a stronger PLN, we will have to wait for some solid publications from the local economy. The culmination of all positive outcomes significantly increases the odds for the zloty to return to an appreciation trend.

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

Range EUR/USD 1.1150-1.1250 1.1050-1.1150 1.1250-1.1350
Range EUR/PLN 4.1400-4.1800 4.1400-4.1800 4.1400-4.1800
Range USD/PLN 3.7000-3.7400 3.7400-3.7800 3.6600-3.7000
Range CHF/PLN 3.9800-4.0200 3.9800-4.0200 3.9800-4.0200

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

Range GBP/USD 1.5250-1.5350 1.5150-1.5250 1.5350-1.5450
Range GBP/PLN 5.6600-5.7000 5.6800-5.7200 5.6400-5.6800

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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