Daily analysis 10.11.2014:
Mixed US jobs data didn't allow the dollar to appreciate further and the EUR/USD rebounded to around 1.2500. Almost 4 percent rouble appreciation. Ukrainian hryvnia the lowest in history. The zloty is gaining some value after Chojna-Duch comments, but the rest of the day should be pretty calm.
Macro data (CET- Central European Time). Survey is supplied by Bloomberg unless otherwise noted.
- No major economic data which may significantly affect the analyzed pairs.
Jobs market. The ruble. Hryvnia
Friday's job report wasn't bad. We should say that only the “headline” payroll fell a bit short of expectations (214k vs 235k). The difference, however, erases when we see that the previous two readings were revised upwards in the sum of 30k.
Slightly below estimates was also the wage rise (2.0% vs 2.1% y/y) at this might have been a catalyst that pushed the EUR/USD higher (lower inflation pressure). The remaining data were pretty solid especially when we look at the household survey.
The unemployment rate dropped to 5.8% (survey: 5.9; previously 5.9; in October 2013 7.2%) and we are getting closer and closer to the full employment. The participation rate edged higher to 62.8% while the number of unemployed slided below 9 billion (it was more than 11 million a year earlier).
According to the calculator of future employment rate published on the Atlanta Federal Reserve website which combines both the establishment and household surveys we need only 4 months with payrolls at 220k (what is the 12-month average) to see the unemployment at 5.5% in the US (5.2-5.5 is regarded as a long term Fed goal).
On Friday afternoon the pairs connected with the dollar were not able to make up their minds whether the data is supportive for the greenback or not. As a result right after the numbers hit the wires we saw both rates around 1.2450 and 1.2350. Finally, however, the view of weaker dollar won, but the impulse was rather generated from the debt market. The yields on 10-year treasuries dropped from 2.39% to 2.31% (lower yields suggesting subdued inflation for longer; lack of wage growth won the trade). The move has been extended to the Monday's session what is also pushing the dollar lower not only to the euro but also to the yen.
In the medium term, however, all the corrections will be probably heavily exploited to open new long positions on the dollar (especially to the yen and the euro).
A significant rebound on oil, another Russian gas contract with China, relatively positive Putin's meeting with Japanese prime minister during Asian summit combined with more verbal interventions from the central bank (CBR) and the suggestion from Kremlin host that “the rouble rate jumps are speculative, will end soon” are giving the rouble a solid rebound (around 4% to the USD+EUR basket).
It is hard to say whether the CBR will take the opportunity to extend the rebound or will allow speculators to play the game between themselves. It is, however, highly possible that most of the slide is behind us. We cannot rule out the new lows but the the central bank is much clear which levels are seen as an unacceptable.
The hryvnia is heading the opposite direction. The Ukrainian currency after few weeks with calm trading (probably the central bank fixed the rate to run the elections smoothly) weakened around 10% in the recent days and we are closely approaching 15 UAH per the dollar (at the beginning of the year it was 8).
Additionally the central banked announced before the weekend that only in October the currency reserves dropped by 25% (besides interventions part of the dollars were used to repay gas bill) to 12.6 billion USD (less than 2 months of import). Further hryvnia slide is pretty possible. Despite the fact that most of the problems regarding the economy were inherited from Janukovych administration and are due to military intervention in the east it is also clear that the current government is not able to run the country (inflation in October rose to 20% y/y).
The current week is pretty empty concerning the economic data and the market may wait for the euro zone GDP readings to generate a move. However, it is hard to expect a positive surprise to happen and the growth in Q3 should not exceed the statistical error. As a result we can even see that some market participants will try to predict the future move and sell the euro, but currently the test of Friday's lows (1.2350) is not the base case scenario.
Calm on the zloty
It is getting pretty certain that Elzbieta Chojna-Duch voted against the rates cut in November. In an interview for Bloomberg, the “former” dovish member, said that “further loosing of monetary policy wouldn't be justified with the economy growing at stable solid rate of about 3%.
Moreover, she also told PAP that it is worth keeping the room for maneuver when the GDP pace slows for example due to some tension in global markets especially in the euro zone.
Chojna-Duch comments are clearly suggesting that she can only push for more cuts when the future economic situation worsens. Currently it is not the base case scenario, so we may assume that for a least few more months the benchmark rate will remain unchanged.
We should not expect strong moves on the EUR/PLN and CHF/PLN today which should remain around 4.22 and 3.50-3.51 respectively. The correction may be extended on USD/PLN, but the slide below 3.35 is not really probable taking into the account current market conditions.
Expected levels of PLN according to the EUR/USD rate:
Expected GBP/PLN levels according to the GBP/PLN rate:
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