Daily analysis 09.12.2015

, author:

Marcin Lipka

Switzerland's monetary is in the centre of attention before the tomorrow's SNB meeting. The EUR/USD is gaining on the wave of worse global sentiment. The zloty remains one of the weakest currencies on the emerging and global markets.

Most important macro data (CET – Central European Time). Estimations of macro data are based on Bloomberg information, unless marked otherwise.

  • No macro data which could have a significant impact on the analysed currency pairs.

Expectations before the SNB meeting

The Swiss National Bank (SNB) will publish the announcement from its December's meeting tomorrow at 9.30. Switzerland's monetary authorities are struggling with overvalued currency and low inflation for many quarters. They will either leave the basic parameters of monetary policy on an unchanged level, or decrease interest rates and intensify currency interventions.

According to the survey conducted by the Bloomberg agency, 15 out of 19 surveyed economists expect the deposit rate to be maintained on the level of minus 0.75%, one expects it to be decreased to minus 0.85%, and three of them thinks it will be on the level of minus 1.00% after the meeting.

It is worth noticing, the fact of the ECB leaving the level of monthly assets purchase unchanged, makes the SNB task a little bit easier. In mid January the Swiss claimed that they have resigned from keeping the EUR/CHF rate above 1.20 mainly because of the monetary easing in the eurozone. This time the appreciation pressure on the franc is probably not that strong, as it was almost a year ago. Thus, the chance that the SNB will not make the decision about easing the monetary policy is bigger.

The base case scenario may assume that the franc's quotations should not change much tomorrow morning. Even if this change occurs, the SNB is probably ready to intervene. Its representatives emphasise this on almost every occasion.

On the other hand, if the SNB decides for a specific movement (which is a decrease in deposit rate by 25 base case points, and extension in range of 3M LIBOR fluctuations to minus 0.5% - minus 1.5%), a visible wear off on the franc could be expected. It is possible that the EUR/CHF could go then above the area of 1.10. A sign of a strong determination from the SNB could be an additional result. It would probably endure the higher levels on the above mentioned currency pair.

Worse sentiment supports the euro

The global sentiment is clearly deteriorating from the beginning of the week. It can be seen in decreases in prices of shares on the developing markets, new minimums on raw materials, and a wear off on the Chinese currency. This kind of environment supports the European currency, due to a reduction in carry trade on the euro.

The return of cheaply loaned capital to the eurozone, causes an appreciation of the common currency due to a bigger volatility abroad. Even though sometimes this movement does not have much to do with intuition (considering the economic situation, or even monetary policy), it is however one of the main factors that determine the movements on the currencies. Behaviour of the yen during few past years is a good example for this. If the global sentiment does not improve, the EUR/USD may quite quickly test the area of 1.10.

Few words about the foreign market

Worse global sentiment causes an appreciation of the currencies used for the carry trade, which are the euro and the yen among others. If the situation does not improve and the macroeconomic data and statements from the central bankers are neutral, it is possible that the EUR/USD will even test the area of 1.10.

Zloty is stronger only the resource currencies

The zloty is the fourth weakest currency among the 31 currencies of developed and emerging markets, included on the list of the Bloomberg agency. From the beginning of current quarter, the PLN lost 4.3% to the dollar. The only currencies, which at the same time achieved a worse result, were the ones from Colombia, Russia, and the Republic of South Africa – the countries experiencing serious economic problems. In the same period the euro and the forint lost in relation to the dollar respectively 2.2% and 2.4%.

The Polish currency is also the weakest to the euro since January. It is also worth noticing that the statistic is slightly disturbed because of the quotations from the past Christmas (due to a small liquidity the EUR/USD increased to 4.40), and situation on the franc from mid January. When excluding these unusual events, the zloty to the euro reaches its minimums from 2013 and mid 2012, when the existence of the eurozone was endangered.

It is also worth noting the situation of the franc in context of the tomorrow's SNB decision. If the base case scenario (which is leaving the parameters of monetary policy unchanged) is fulfilled, the CHF/PLN should remain close to the current levels. On the other hand, if interest rates are decreased, we can expect the franc to go to the area of 3.95.

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 4.3200-4.3600 4.3200-4.3600 4.3200-4.3600
Range USD/PLN 3.9600-4,0000 4.0000-4.0400 3.9400-3.9800
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 1.5050-1.5150 1.4950-1.5050 1.5150-1.5250
Range GBP/PLN 5.9800-6.0200 5.9600-6.0000 6.0000-6.0400

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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