Daily analysis 14.11.2013

, author:

Marcin Lipka

The EUR/USD almost topped 1.3500 in late evening after unexpected release of Janet Yellen opening remarks before Senate Banking Committee. German GDP reading in line with estimates but the French economy fell short of expectations. The zloty took advantage of “risk on” sentiment and moved back below 4.20 per the euro. Solid GDP reading from Poland.

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

  • Already published GDP from Germany and France.
  • Already published GDP from Poland.
  • 11.00 CET: GDP reading from the Eurozone (survey: +0.1% q/q).
  • 14.00 CET: CPI from Poland (survey +1.0% y/y).
  • 14.30 CET: Weekly jobless claims from the US (survey 330k).

Close to 1.35. Yellen statement. GDP

Investors who cashed out the recent dollar gains should be pretty happy. Yesterday evening the Federal Reserve published Janet Yellen opening statement before the Senate Banking Committee. The vice chairwomen confirmed her dovish approach to the monetary policy, what directly pushed the dollar lower and boost the EUR/USD close to the 1.35 mark. On the other hand Germany and France published Q3 GDP data which are not supporting the evening gains.

During a really thin market (European late evening) Janet Yellen statement (unexpectedly) was published on the Federal Reserve web site ( ). Besides the courteous paragraphs there are two issues which can give some direction how the today's hearing can look like. Firstly the Fed's vice chairwoman claims that “A strong recovery will ultimately enable the Fed to reduce its monetary accommodation and reliance on unconventional policy tools such as asset purchases. I believe that supporting the recovery today is the surest path to returning to a more normal approach to monetary policy. Secondly she writes that “We have made good progress, but we have farther to go to regain the ground lost in the crisis and the recession. Unemployment is down from a peak of 10 percent, but at 7.3 percent in October, it is still too high, reflecting a labor market and economy performing far short of their potential. At the same time, inflation has been running below the Federal Reserve’s goal of 2 percent and is expected to continue to do so for some time”. Both quotes confirm that the dovish approach should remain for longer and the QE can be extended further (still to high unemployment despite the solid NFP, too weak growth and no inflation pressure). Still the hearing will be closely watched, so it is worth to listen the future Fed's chairperson.

In the morning European GDP readings hit the wires. German growth was in line with expectations (+0.3% q/q seasonally adjusted). Again the situation in France was disappointing. Paris returned to the negative territory and published a 0.1% contraction in the third quarter. We can than expect that the euro area reading can also be dire and the expected growth (+0.1%) can turn into a “no growth”. If it is true we can expect some EUR/USD deterioration.

Summarizing, despite many economic indicators, the key to the EUR/USD performance can be Janet Yellen hearing. Any remarks on future dovish monetary policy should weaken the dollar and push higher the EUR/USD (to the evenings highs).

The EUR/PLN under 4.20

In the recent hours the zloty took advantage of Janet Yellen dovish statement and solid GDP reading from Poland. The growth was much higher than expected. The headline number turned out to be 0.3 percentage above estiamtes (1.9% y/y vs 1.6% y/y not seasonally adjusted). We can also see that the last quarter was the strongest since Q4 2011 (+0.6% q/q seasonally adjusted). There is also a higher probability that we can match the government estimate at 1.5% in 2013.

Summarizing the zloty received two positive signals – higher probability of longer QE and stronger economy at home. Both news pushed the zloty higher and brought the EUR/PLN to 4.16-4.20 range.

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

Range EUR/USD 1.3450-1.3550 1.3550-1.3650 1.3350-1.3450
Range EUR/PLN 4.1600-4.2000 4.1600-4.2000 4.1600-4.2000
Range USD/PLN 3.0800-3.1200 3.0500-3.0900 3.1100-3.1500
Range CHF/PLN 3.3800-3.4200 3.3800-3.4200 3.3800-3.4200

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

Range GBP/USD 1.5950-1.6050 1.6050-1.6150 1.5850-1.5950
Range GBP/PLN 4.9700-5.0100 49900-5.0300 4.9500-4.9900

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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