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Daily analysis 10.03.2015

, author:

Marcin Lipka

Dollar on multi-year highs to most currencies. More trouble with Greece. The zloty is fairly stable to the euro and franc but falls to the record low levels to the dollar. The USD over 4.00 PLN is almost a base case scenario.

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

  • No major macro data which may affect the analysed currency pairs.

New record dollar strength

The US dollar has strengthened significantly to most currencies. After Friday's payrolls and overall “greenback” appreciation we assumed that the upward trend would be paused for a while and the market is prone to wait for additional impulses. However, it didn't happen and after a short break the dollar resumed the appreciation.

It pushed the EUR/USD below 1.0800 after the Asian session and during the European opening it fell more towards 1.0750. But not only the common currency was weakening. New multi-year lows were observed on Japanese yen and Norwegian crone. Many EM currencies also feel the pressure especially those closely connected to the USD like Brazilian real, Turkish lira or Indonesian rupee. There are many individual reasons behind the EM weakness but the stronger dollar and US future monetary policy magnifies issues.

Currently it is hard to find a strong argument which may push the USD for stronger correction. In the eurozone and Japana central banks run quantitative easing, crude oil exporting countries still fill the pain from falling energy prices and many EM economies are tarnished with internal problems which generate the capital outflow.

Changes are also magnified by the strong speculative moves which clearly favour the US currency. It is also worth noting that even if investors from across the pond buy the European assets they usually hedge their currency position. It also prevents dollar from a stronger correction.

Greece again

We are coming back to Greece relatively quick. Currently both the Hellenic Republic and EU officials are trying to work on details concerning the February's agreement which should unlock the aid for Athens. The talks are not really easy even though the statement was agreed in February.

There are rumours that the Greek administration doesn't want to stick to the proposals presented few weeks ago. Additionally, according to the leaks from Brussels, Athens has only enough money to run the country for two/three more weeks. There is, however, a question whether the market really cares about such reports. The EUR/USD, of course, falls but the slide in recent days is rather connected with the overall dollar strengthen and euro weakness caused by the quantitative operation

Greece is still expected to receive bailout funds despite the fact that the path still looks bumpy. More trouble can be seen on the horizon when the temporary agreement ends in 4 months, but until June the issues should be less and less visible.

The foreign market in a few sentences

Since February 26th the EUR/USD fell from 1.1350 to 1.0750. If such strong depreciation continues, it would push the most heavily traded currency pair towards parity as early as this month. But such significant slide in such a short period should be regarded as long-tail risk rather than the base case scenario. Currently, the most important event which should bring more attention is the Fed's meeting on next Wednesday. It can be crucial statement from the Fed, either giving more boost the dollar or generate a stronger correction.

4 PLN for the dollar is around the corner

The EM currencies have been severely beaten by the dollar rally. The Mexican peso and Turkish lira are traded at the lowest level in history to the USD. The tsunami also hit the Polish zloty. The USD/PLN pair is set to hit 3.90 level pretty soon and the 4.00 mark should be achieved till the end of first half of the year.

Much less volatility is expected both on the franc and the euro. However, in moments of significant risk off we should expect that both EUR/PLN and CHF/PLN can appreciate but the overall trend should be bearish. It is still possible that the EUR/PLN tests 4.00 in the fist half of the year while the franc can hit 3.75.

Today we expect quite nervous trading especially when the US traders open their desks. The USD strength toward EM currencies may significant disturb the PLN and the USD/PLN may finish the day above 3.85 and EUR/PLN can hit 4.14.

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

Range EUR/USD 1.0750-1.0850 1.0650-1.0750 1.0850-1.0950
Range EUR/PLN 4.1200-4.1600 4.1200-4.1600 4.1200-4.1600
Range USD/PLN 3.8000-3.8400 3.8400-3.8800 3.7600-3.8000
Range CHF/PLN 3.8500-3.8900 3.8500-3.8900 3.8500-3.8900

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

Range GBP/USD 1.5150-1.5250 1.5050-1.5150 1.5250-1.5350
Range GBP/PLN 5.7700-5.8100 5.7500-5.7900 5.7900-5.8300

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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