Daily analysis 13.06.2014

, author:

Marcin Lipka

Rebound on the EUR/USD after weaker data across the pond. The pound is significantly stronger due to Carney's hawkish comments. Fitch cuts South African rating perspective and S&P may go even further. The zloty is weaker in anticipation of the inflation data.

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

  • 14.00 CET: CPI from Poland (ISBnews survey: +0.4% y/y).
  • 14.00 CET: Balance of payments reading from Poland (ISBnews survey: +439 million euro).
  • 14.30 CET: PPI from the US (survey: +0.1% m/m).
  • 15.55 CET: University of Michigan/Rueters Consumer confidence (survey: 83 points).

The data helps. Faster rate hikes. Rating cut

The EUR/USD rebounded from the recent lows and we returned over 1.3550. The most heavily traded currency pair got some help from macro data and overall slight dollar weakness. The retail sales from the US failed to meet market expectations to jump 0.6% and rose only 0.3% m/m (on the plus side the reading from the previous month was revised upside form 0.1% to 0.5%). Worse than analysts' estimates were also jobless claims which rose to 317k instead of dropping to 309k. The EUR/USD (this time from the Euro side) received some support from Chinese data. Beijing announced that industrial production rose 8.8%, meeting market expectations set at 8.7% and retail sales soared 12.5% beating economists' estimates around 12.1%.

Late evening we had a strong upside move on the GBP/USD. It was directly caused by Mark Carney speech suggesting that the interest rates may rise earlier than the market expects. It is mainly a consequence of real estate boom, significant improvement of the labor market conditions and overall upbeat economy. As Mark Carney is considered to be quite dovish, his hawkish comments pushed the cable 100 pips higher just after the announcement. It also added another 50 pips at the beginning of the European session. Currently the market will be observing any data which may push the MPC to hike the rate earlier closely. The bulls on cable will be also trying to exploit any opportunity to move the pair higher so the new, almost 6-year records, should be on the horizon.

There is a completely different story on the South African currency. Fitch lowered the country's rating perspective to negative due to downward revisions of the GDP growth. Currently the agency estimates that the nation will expand at 1.7% pace this year (previous estimate was set at 2.8%) and 3.0% next year (earlier at 3.5%). The market is also getting ready for today's Standard & Poors decision. The S&P already has the negative perspective on South African BBB rating, so any change will push the credit credibility just one notch above junk level. Reuters quoting Barclays strategists claims that if the S&P cuts USD/ZAR may rise to 11.00 (last price was around 10.70), but if the nation keeps it BBB stand we should see a rebound toward 10.30.

Summarizing, the EUR/USD was able to rebound from recent lows and return above 1.3550. It should give some level of comfort before the next week. However, investors should be pretty cautious before the Federal Reserve meeting. The Fed will announce a new set FOMC projections and Janet Yellen conference. Both may strengthen the dollar and push the EUR/USD again toward 1.3500 level.

Another a quarter of one percent weaker. The MPC

The zloty is getting weaker to the common currency for another day in the row. Most transactions are currently set around 4.12 level. The PLN is under pressure before today's CPI data which is projected to rebound slightly (from 0.3% y/y to 0.4% y/y) but there are many rumors that the reading may be lower than the expectations. Polish currency is also not supported by some dovish comments from Chojna-Duch. The MPC member told Bloomberg yesterday that due to the recent ECB decisions and expectations for more easing from the European Central Bank, the Committee should consider the cut at the July's meeting.

In the recent week we received opinions from 7 MPC members (out of 10, including the governor). Most of them (expect Glapiński and Chojna-Duch) are against the cut and would rather keep the rates unchanged. The rest (3 out of 10 who hasn't spoken yet) are also probably against the additional easing. Andrzej Rzońca told Polish Press Agency in May that we would see a hike as early as in Q4 of 2014, so it is hard to imagine that he would vote for a cut. The same finding can be made regarding Andrzej Kazimierczak who told Bloomberg last month that would see a hike in the Q2 of 2015. A slightly more complex situation is regarding professor Osiatyński. While the majority was calling for the incoming rise, he expected the rates to remain unchanged until 2016. He hasn't spoken public for two months expect his short remarks on high level of investments in the recent data but it was not possible to evaluate whether his moved further toward dovish side or remained at (current neutral). Concluding and taking into the account all MPC views there is virtually zero chance that we may see cut at the July's meeting. However, during the Committee spring break we will get a nice chunk of data and the discussion on rates will be pretty intense, so even when nothing happens in July the subject will be quite widely scrutinized.

Today the market will be focused on the inflation data. If the CPI fails to rise toward 0.4% y/y, we may experience another PLN weakness and 4.12 on EUR/USD should be exceeded. On the other hand, some support should be visible from the BOP data where the current account surplus will probably exceed the market expectations.

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

Range EUR/USD 1.3550-1.3650 1.3450-1.3550 1.3650-1.3750
Range EUR/PLN 4.1000-4.1400 4.1000-4.1400 4.1000-4.1400
Range USD/PLN 3.0200-3.0600 3.0400-3.0800 3.0000-3.0400
Range CHF/PLN 3.3600-3.4000 3.3600-3.4000 3.3600-3.4000

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

Range GBP/USD 1.6850-1.6950 1.6950-1.7050 1.6750-1.6850
Range GBP/PLN 5.0900-5.1300 5.1100-5.1600 5.0700-5.1100

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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