Daily analysis 11.03.2015

, author:

Marcin Lipka

The euro rate breakdown - EUR/USD falls to the level of 1.06. The misunderstandings between the SNB and the Swiss authorities. The zloty makes up for yesterday's losses against the euro, but the situation is still tense. The dollar is at its 11-year-high against the domestic currency.

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.

Below 1.06 on EUR/USD

Any reason to weaken the European currency is a good one. Today about 9:00 CET Mario Draghi gave his speech on the monetary policy of the eurozone. The ECB president said nothing new apart from what we already learned during conferences in January and March. This, however, does not change the fact that the speech was used for further lowering the EUR/USD rate - not by over a dozen pips but started the movement by an entire figure.

The Greek situation looks pretty much the same. It is only reasonable to assume that more problems of Athens are negative for the eurozone, but not so much the euro is sold out so rapidly. Will addressing issues of little value and strong movements caused by it enough to put an end to the falling trend on EUR/USD?

The intuition might indeed incline that, however, the history of the currency is rich in events which went exactly the opposite. Currently we have one key reason which accelerates the capital flow to USD. It's the monetary policy tightening taking place over the ocean and its rapidly cooling off in the eurozone. It is shown very clearly on 10-year debt instruments, which were quoted over the ocean at the level of 2.2% and only 0.2% in Germany. The reason above, as recent weeks showed, can be repeated non-stop and still be up-to-date.

Additionally, what also can be observed in the recent weeks, there are some less important issues. It might be Greece, it might be a speech of one of the Fed members, it might be ECB or worse data from one of the key economies. Yesterday's analysis explored the subject of the parity being the base case scenario, but it's not the case this month. Today, as we get close to 1.05 and within the last two weeks a fall by 800 pips took place, declaring staying above 1.00 until the end of March isn't as obvious as it used to.

When summarizing the events on the market it is worth noticing that the situation is very tense. Seemingly trivial reasons can make future falls even deeper and get close to the level of 1.00. The situation is similar with the possible raises. If the Greek find common ground regarding the details of prolonging the 4-month bridge programme, the strong rebound is very likely.

Tension in Switzerland

Today's 'The Wall Street Journal' describes the tension between the coalition in power and the Swiss Central Bank in a quite interesting way. The Parliament clearly wants to have more control over the SNB, which would include appointing members of the monetary authority and necessity to present the assumptions and results of the monetary policy directly to the legislative power.

These changes emerged from the commotion which occurred because of the SNB giving up on capping EUR/CHF. It generates problems for the exporters, who either are forced to cut the employment or move their business abroad.

Moreover, it is hard to assess if the authority current actions have anything in common with the leaks regarding the necessity of reconsidering setting the minimum exchange rate of EUR/CHF. However, the bigger the pressure put on the SNB, the bigger chance for loosening the monetary policy by the Swiss and higher probability of maintaining or lowering the franc's rate against the euro.

The foreign market in a few sentences

This week isn't very rich in the makro data. The most important events in the next few hours are opening on the bonds and stocks market over the ocean. If yet another session in the USA ends up below zero, and the sell-off of the raw materials causes raise of risk aversion, then by the end of the day EUR/USD should go below 1.05.

USD above 3.90

In yesterday's analysis it was stated that it won't be long until USD reaches 3.90 and after that exceeds the level of 4.00. It was hard to expect, however, that the first stage is reached that shortly. The global strengthening of the American currency is so rapid and broad, that similar moves weren't observed since the climax of 2008/2009 crisis.

However, because the USD started from the level of 3.00 and was at 2.00 PLN back in 2008, the current quotations of the Aerican currency already exceeded the one from 2009 and right now the dollar has not been that expensive in relation to the zloty since April 2004.

USD/PLN in the last 15 years

Chart Source: Bloomberg. The raise of USD/PLN means strengthening the American currency against the zloty.

It is also worth noting that reaching the level of 4.00 shouldn't cause additional changes. The fact of exceeding the level of 4.00 PLN should neither be an argument for stopping of the trend, nor its acceleration. Everything “occurs” on the foreign market anyway, and USD/PLN is only a resultant of changes on EUR/USD and EUR/PLN.

The situation calmed down a bit on EUR/PLN. One should remember, that along with significant increase of aversion towards risk, defined as drops on developed stock markets and resources, not only cause the zloty's weakening in relation to USD, but also to the European currency. Today there is a little chance for Dow Jones drops to cross 300 points again, and the oil would get cheaper by few per cent. Thus, EUR/PLN and CHF/PLN should remain relatively below 4.15 and 3.90. However, if the sales on the other side of the ocean would continue, exit in the areas of 4.17 on EUR/PLN and 3.91-92, would become a basis scenario.

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

Range EUR/USD 1.0550-1.0650 1.0350-1.0450 1.0450-1.0550
Range EUR/PLN 4.1200-4.1600 4.1200-4.1600 4.1200-4.1600
Range USD/PLN 3.8800-3.9200 3.9200-3.9600 3.8400-3.8800
Range CHF/PLN 3.8700-3.9100 3.8700-3.9100 3.8700-3.9100

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

Range GBP/USD 1.5050-1.5150 1.4950-1.5050 1.5150-1.5250
Range GBP/PLN 5.9000-5.9400 5.8600-5.9000 5.9400-5.9800

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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