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Daily analysis 11.04.2014

, author:

Marcin Lipka

EUR/USD moves close to the limits of 1.3900. ECB members' statements which aren't very firm, are sustaining bulls' appetites. Dollar costs over 13.5 hryvnia before the afternoon. Zloty looses a bit after a clear reduction of prices on Wall Street, however, the fall of Polish currency's value fits in the thin division of EUR/PLN pair fluctuations.

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

  • No major economic data which can significantly affect the analyzed pairs.

Euro. ECB. Ukraine

The fall of the greenback value in relation to majority of main currencies reflects in higher rates of EUR/USD. Bulls' good moods were not interrupted by clear decreases on the American stock market where technological Nadaq fell by 3%, which was the worst session since November 2011. The main currency pair tries to indicate that it is resistant to global growth of risk aversion and concentrates only on the signals from central banks. Representatives of ECB had an occasion for bigger involvement in fighting against the low inflation yesterday, however, their statements were once again (very) little concrete.

On his conference in Washington Mario Draghi declared (quoted after the official ECB website) that “the recent information remain coherent with our expectations about prolonging period of low inflation after which we will witness its slow increase during 2015 to achieve the levels closer to 2% at the end of 2016” (repetition of information from relatively hawkish March communicate). Further on Draghi explained that the gradual decrease of inflation's tempo since July 2013 is caused mainly by “a negative contribution of energy prices and a clear decrease of unprocessed food's inflation”. The chairman also repeated the main thesis from the recent ECB summit that the monetary authorities are ready to “act fast” and agree to use “unconventional instruments” to fight prolonged period of low inflation. However, no additional details about assets' purchase (except for the will of private debt market re-activation), nor references to currency market appeared.

The statement of Vitor Constancio can be interpreted as one of the similar tone. During Levy Economic Institute conference in Washington, ECB vice-president said (quote from “The Wall Street Journal”), that “we will do something because the inflation is very low considering the fact, that our main mandate is stabilization of prices and we are not achieving this goal in mid term”. Saying “do something” was even placed in the headline of “WSJ” article what can show the lack of will/possibility to introduce a more aggressive monetary stimulation in a very good way.

Before today's afternoon USD/UAH pair reached another record level – over 13.5. Just to remind you, on a Wednesday the rate was 12 hryvnias per dollar. It means that the Ukrainian currency lost over 11% within just two days and reduction of its price since the beginning of the year is now over 40%. In their statements for “Mifin” website, the local banks representatives claim that until Kiev will not receive any cash from IMF, the USD/UAH pair can even reach the level of 15. It is also worth to notice that despite the fact that the rate's release occurred few weeks ago and the culmination of tense on the line West-Russia-Ukraine is, with a big probability, behind us (at least in the eyes of the global market), the sudden acceleration of hryvnia value's decrease occurred just now.

In conclusion, the market is still sceptical about ECB making the QE operation. Additionally, very dovish “minutes” from Fed sustain the dollar under pressure. As a result, EUR/USD is very close to over two years old records. We will receive new ECB members' statements during the weekend so reaching the new peaks (and the risk of maintenance on the market during the weekend) is very little probable. However, if the representatives of European monetary authorities will still show a low level of decisiveness, the attack on 1.40 can be possible as soon as next week.

Without bigger changes

Yesterday's reduction of prices on American stock markets weakened the Polish currency only by PLN 0.01 in relation to Euro. It indicates that zloty is resistant to the outside signals and its base case scenario is to maintain its rate close to the current levels. On the other hand, USD/PLN pair maintains slightly above the limit of 3.00. If no clear evaluation of Euro price to dollar will occur (e.g. related with more unambiguous statements of one of the head ECB members) we can expect a descend of USD/PLN in the areas of 2.95 next week.

Today just like during latest days Euro and the Swiss franc should be stable. Increase of the risk aversion (descends on stock markets) caused a minimal movement upwards of above mentioned pairs alteration range. Thus until the end of the day we will be moving in the areas of 4.175 (+/- PLN 0.01) on EUR/PLN. Similar changes will also concern CHF/PLN. Test of level 3.00 on USD/PLN should not occur during upcoming hours (too big risk before the weekend).

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

Range EUR/USD 1.3750-1.3850 1.3850-1.3950 1.3650-1.3750
Range EUR/PLN 4.1600-4.2000 4.1600-4.2000 4.1600-4.2000
Range USD/PLN 3.0100-3.0500 2.9900-3.0300 3.0400-3.0800
Range CHF/PLN 3.4000-3.4400 3.4000-3.4400 3.4000-3.4400

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

Range GBP/USD 1.6550-1.6650 1.6650-1.6750 1.6450-1.6550
Range GBP/PLN 5.0100-5.0500 5.0300-5.0700 4.9900-5.0300

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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