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Daily analysis 17.03.2015

, author:

Marcin Lipka

Alternative scenarios before Wednesday summit of the Fed made the American dollar weaken. Thursday decisions of the Swiss National Bank can be important for the franc in mid-term. Zloty remains in the limits of 4.14 per euro. Tomorrow we will receive the data about production and retail sale.

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

  • 13.30 CET: Initiated investments on real estates market in USA (survey: 1040k, data for February, annualized, seasonally equalized).
  • 13.30 CET: Permissions for construction in USA (survey: 1065k, data for February, seasonally equalized, annualized).

Alternative scenarios

The American dollar market got a little “scared” of historically the fastest quarter appreciation of “the buck” in relation to the euro. Currently it is trying to generate a correction by playing under alternative scenario. If Fed would decide to maintain “patience” in its statement, we can expect the biggest rebound.

It would mean that the interest rates will surely remain on an unchanged level until July. If one would additionally consider that Fed's summit in April lacks a press conference or macroeconomic prognoses, there would appear some suggestions, that “patience” could be maintained until June. In result, the perspective of extending zero interest rates, would have been extended at least until September.

If the above scenario would have been marked by Fed on Wednesday, the dollar could seriously weaken and it would very probably return to the limits of 1.10 on EUR/USD. However, chances for leaving the Fed's statement without changes are very small. Throughout the recent months, Fed has been building the expectations for dropping “patience”. Due to the fact that besides a clear appreciation of the dollar, which was predicted by some FOMC members, not much changed in the American economy. We should assume, that the promise about dropping the decision about maintaining the interest rates on unchanged level, at least for two upcoming summits, will be erased on Wednesday.

Paying more attention to the enforcing dollar and international situation would also be an alternative scenario. Including those two matters in the statement and underlining them during the press conference, could mean a longer maintenance of the lower interest rates and suggest a milder path of monetary tightening. It would also be an argument for a stronger rebound of the dollar, and increase of EUR/USD even in the areas of 1.08.

However, just like in case of “patience”, to visible anxiety of stronger currency or the events in the world, would be incoherent with fed's previous suggestions. They said about natural consequences of monetary policy for the currency market. It would also be incoherent with the suggestion, that Open Market Committee cares mostly for the economic situation in USA, and not in the whole world.

Decision of Swiss National Bank on Thursday

The market is mainly focused on Wednesday Fed communicate. However, SNB summit on Thursday, can be more important in case of franc. According to consensus of the economists' surveyed by Bloomberg, the deposit rate will remain on minus 0.75% level, which means that the preferred level of LIBOR will be a range between minus 1.25% and minus 0.25%. Only three out of sixteen respondents thinks, that SNB will lower the rates by 25 basis points, and one of them claims that it will be 50 basis points.

Recently some speculations also appeared about the SNB being eager to change the currency regime, and control francs evaluation, depending on the basket of currencies, based on their percentage participation in commercial exchange. The division, in which franc could move, itself would be secret. Although one could figure it out in a certain degree, basing on the interventions.

Just the suggestions about considering such an idea during the conference, should be negative for franc. On Thursday we should also receive some new macroeconomic projections. There will probably be a significant downward review of future inflation's perspective, and GDP increase related with appreciation of local currency.

If there is no introduction of new elements in monetary policy and the chairman of SNB will be in a certain degree satisfied with a recent decrease of CHF value in relation to the dollar, the franc will possibly enforce. On the other hand, the announcements of further interest rates' reduction, or the discussion concerning the changes of currency regime, should clearly weaken the CHF.

Few words about the foreign market

Working off on EUR/USD is much probably only a correction in historically strong decrease trend. If Federal Reserve will not surprise with some “alternative scenario”, we should see new minimums on main currency pair relatively quickly.

Zloty and the sentiment

Currently, quotations of zloty are in a significant degree dependant from the sentiment on main stock exchange markets. Decreases of Indexes should overestimate the national currency, and the increases strengthen it. Everything, however, occurs in a relatively small range of fluctuations, and it should not change within the upcoming hours.

Apart from the Fed's summit, tomorrow we will receive a series of data from national economy. According to economists' consensus, the industrial production in February increased by approximately 4% y/y, but retail sale remained on unchanged level. However, due to the fact that the Federal Reserve's decision will occur after Polish readings, the market will ignore the latter publications. Unless it will be deflected from estimations by at least 1-2 percent.

Today's data about employment and salaries, should also not have any greater influence on PLN behaviour. Both values are growing in stable trends, and confirm the improving situation of national labour market.

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

Range EUR/USD 1.0650-1.0750 1.0450-1.0550 1.0550-1.0650
Range EUR/PLN 4.1200-4.1600 4.1200-4.1600 4.1200-4.1600
Range USD/PLN 3.8600-3.9000 3.9000-3.9400 3.8200-3.8600
Range CHF/PLN 3.8900-3.9300 3.8900-3.9300 3.8900-3.9300

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

Range GBP/USD 1.4850-1.4950 1.4750-1.4850 1.4950-1.5050
Range GBP/PLN 5.8000-5.8400 5.7800-5.8200 5.8400-5.8800

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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