Daily analysis 15.04.2014

, author:

Marcin Lipka

Maintenance of descend pressure on EUR/USD after comments of ECB representatives this weekend. The speech of Fed chairwoman, Janet Yellen. Ukraine increases money rates to help their currency. Swedish krona maintains under pressure. ZEW from Germany. Night data from China. Zloty stabilizes in limits of 4.18 per Euro. Chojny-Duch about the possible moment of monetary policy tightening start.

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

  • 14.30 CET: Data about inflation from USA (+0.1% m/m).
  • 14.45 CET: Janet Yellen's appearance on Fed conference in Atlanta.

Reactions. Ukraine. Krona. Data

A discussion about the real intentions of ECB occurred in the market. The main question asked by FX market participants was: do the weekend comments of Euro Zone central bank's representatives have to prepare the market for clear easing of monetary policy in the upcoming months or are they just verbal (simple and without bigger consequences) attempt of common currency's price reduction?

Choosing the second solution is quite intuitive, especially when we consider the success achieved by Mario Draghi in 2012, when he said that ECB will do anything it takes to save the Euro Zone. Behind these words there was few billion of Euro that could be used by the bank to purchase the government securities of peripheral countries. In result, however, these funds were not used because the market “claimed” that the game against ECB can be unprofitable. On the other, hand it is clear that central bank's representatives know the market's realities perfectly and this time they might use a different strategy – not exactly coherent messages, combined with real actions. The result could be similar to the one from 2012. Those who time have denied the futility of ECB actions the longest, have “burned” the most (especially when playing against Euro or peripheral countries' government securities), and the effect was much better than the majority expected.

However, speculations mentioned above concern the mid term. In a short period the FX participants will mainly follow the up to date data about the inflation from Euro Zone. Even Wednesday's review of March data may cause a more serious reaction on the market – supporting Euro in case of upward update of the reading and reducing its price (quite clearly) if it appears lower than 0.5% r/r. The readings of price index for April (last day of this month) will be also very important. If HICP does not take off to at least 0.7-0.8%, the pressure on ECB will increase and cutting interest rates or unconventional elements of monetary policy could be introduced in May or June.

Yesterday Ukraine decided about tightening the monetary policy. In its message the central bank marks that the aim of raising the money rates is to enforce the local currency and stop the growth of inflation. However, the market is currently waiting for calming down of political situation. Only then the government will have to face the economic problems cumulated through years, which will probably translate into significantly deeper slowdown than the current administration thinks (minus 3% of GDK), higher inflation and further pressure on local currency.

The situation of Swedish krona looks interesting. Throughout recent months it weakened by nearly 10% (reverse of “safe haven” trade). During the culmination of crisis of Euro Zone in 2012, the Swedish currency was considered as the “safe coast”, which caused a significant inflow of capital and appreciation of SEK. However, previous days' depreciation is mainly related to dovish communicate of central bank which signalized the possibility of main interest rates' decrease last Wednesday (two out of six Committee members were for this decision). On the following day it appeared, that the inflation data for March indicated CPI decrease to minus 0.6% r/r, what confirmed the possibility of cutting already on the next summit, and at the same time it took off the EUR/SEK pair above the limit of 9.00. Considering that Sweden might be threatened by getting close to deflationary environment throughout 2014 (inflation's forecasts were reduced by the bank to 0.2% r/r from estimated 0.6% r/r in February), the pressure on the currency can maintain strong, and reaching the peaks of 2011 in limits of 9.30 is not excluded.

At 11.00 the ZEW index from Germany was published. Despite the index describing the future moods of the economists' descended a little (mainly because of Ukraine) in comparison to March (by 3.4% to 43.2 points), the current condition of the economy, however, is evaluated best since July 2011. As the experts who prepared the ZEW publication emphasized, descend of future moods may be also dictated by a very good reading of current business cycle (3 questions are being asked in expectations index – will the situation within upcoming 6 months improve, deteriorate or remain constant, thus the situation cannot improve endlessly – author's note). In this case the reading should be neutral for Euro evaluation.

Today and tomorrow it is worth paying attention to Janet Yellen's speech (she should be as dovish as during her previous speech in Chicago about the labor market, what can reduce the price of USD), CPI from USA and the night data from China (mainly GDK). However, the interpretation of Chinese report can be difficult as worst macro indexes can be taken as an invitation to further stimulation, what should work positively risk dependant assets.

In conclusion, today we may witness a certain weakening in recent descends on EUR/USD. However, the investors will refrain from any serious decisions until the night publications from China and Wednesday's inflation reading from Euro Zone.

Return to stabilisation

Lack of Ukrainian armies' intervention in the east of the country and relatively good session on stock markets on the other side of the ocean caused the EUR/PLN straying away from the limit of 4.20 and return to areas of 4.18. From the national news it is worth noticing yesterday's statement of Elżbieta Chojny-Duch. MPC representative (a member of the doves camp, although not as radical as professor Osiatyński) in her interview for the Polish Press Agency, confirmed the Council's base case scenario is to increase the forward guidance on July's summit until the end of the year. Chojny-Duch claims that the increases of money rates may begin “next year, after the first quarter” if the investments will keep accelerating (in average limits of 8.0% per year). She also added, that when the tightening starts, it will not be aggressive.

In conclusion, zloty should be relatively stable today. Data about the inflation from Poland, should not affect Polish currency's records significantly. PLN should also be resistant to the Yellen's comments (only in case of very dove it can gain a little). EUR/PLN pair should move in limits of 4.18 plus/minus one.

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 3.4200-3.4600 3.4200-3.4600 3.4200-3.4600

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 Sp. z o.o is prohibited.

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