Daily analysis 18.04.2014

, author:

Marcin Lipka

The EUR/USD wasn't able to hold above 1.3850. Multi-year highs on the GBP/USD. Geneva agreement can be an important step forward regarding the Ukrainian issues. The zloty gained some value and we ended the day around 4.18 on the EUR/PLN.

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

  • No major macro news that can affect analyzed pairs.

The Euro, the pound and the agreement

Yesterday the EUR/USD didn't use the opportunity and failed to close the session above 1.3850 level. There were at least two issues which pushed the pair back toward 1.3800. Firstly, we had another week with pretty good report on jobless claims. These are not ground breaking numbers but a slide in claims toward 300k can be regarded as another element of improving job market (overall positive for the “greenback”). Secondly, we also received some more comments from ECB member. As Reuters reports, Yves Mersch during his trip to Tirana said that “if these (foreign exchange) developments would continue, this would inevitably have to trigger a reaction by the ECB in order to maintain our accommodative monetary policy stance”. However, he didn't want to elaborate more on what level could trigger the action.

In the recent time we have had some interesting developments on the pound. The British currency has been in a rising trend for months taking advantage from weak dollar and improving condition of the local economy. A key question which is asked on the market is when the BoE is planning to tighten the monetary policy. All FX participants remember that in August 2013 the BoE projected the unemployment to remain above 7.0 % for at least two more years (during that time the monetary policy was supposed to stay unchanged). However, on Wednesday it turned out that the unemployment dropped to 6.9% (more than one year ahead of schedule). Other data are also pretty solid and the GDP reading can top 3% this year. If the economy stays on the course and the dollar does not get significantly stronger, we can easily expect the cable to rise above 1.70 level.

On Thursday in Geneva the representatives from the EU, US, Ukraine and Russian Federation issued a joint statement regarding the issues in the East. Despite the majority of commentators claiming that the agreement may be short-lived, it is worth to point out that it touches some key issues and it is the most important development since the Kiev revolution started. Firstly, it states that “all illegal armed groups must be disarmed and all illegally seized buildings must be returned to legitimate owners”. Secondly, “it was agreed that the OSCE Special Monitor Mission should play a leading role in assisting Ukrainian authorities” to start restoring the order in the country. Finally, the statement also touches that “constitutional process” will include all Ukrainian regions (probably more independence to each region, as Russia demanded). A good indicator of the tensions in the East is Russian ruble. The USD/RUB pair both yesterday and today dropped significantly in the morning and manged to cut almost all the losses since the Ukrainian issues emerged.

Summarizing, the market seems keen to test 1.40 level. However, recently published data from the US (supporting the dollar) and more comments from the ECB members are making this process more and more difficult. To reach the mentioned level we will need at least a few days of silence from the European monetary officials, some better data the Euro Zone (example: higher inflation in April) or/and less bullish readings from the US.

The comeback above 4.18

The zloty, in line with other regional currencies, gained some value during the Thursday's afternoon. We managed to fall about 0.5% below the 4.20 resistance level. What is interesting, however, is that the move came before the official Geneva statement hit the wires. It is possible that some market participants who had bet against the EM currencies assumed that longer discussion between politicians can mean that some kind of agreement may be reached and they didn't want to stay with open orders when the actual statement is published.

Traditionally, we should expect fairly calm trading during the holiday period. The EUR/USD in the coming days should remain close to 4.18 level and the CHF/PLN will be mostly traded around 3.43.

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 5.0300-5.0700 5.0500-5.0900 5.0100-5.0500

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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