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Daily analysis 19.12.2014

, author:

Marcin Lipka

The comeback to medium-term trends after Fed's decisions and ECB comments. Swiss currency game. Rouble stabilizes without central bank intervention. Interesting voting results from Polish MPC. Speculators has targeted the zloty – 4.30 per the euro and 3.50 on the dollar may be breached.

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

  • No major data which may significantly affect the analyzed pairs.

The comeback to global trends

The market participants try to evaluate the recent events – the Fed's meeting, comments from the ECB and the situation in Russia. Currently it is getting more obvious that the medium-term trends should be continued in the second part of the year. It means the stronger dollar, weaker euro and the yen. The Russian impact should not deviate significantly the major current.

In the information flow we missed an important interview published in “The Wall Street Journal” with the ECB board member. Despite the fact that it didn't have a significant impact on the EUR/USD it may work as a “guide” before the first MPC meeting in 2015.

Benoit Coeure, whose view often matches Draghi's opinions, told “WSJ” that he sees “a broad consensus around the table in the governing council that we need to do more” to increase the CPI and boost the GDP. Coeure also claims that “It's not that much of a question on whether we should do something, but more a discussion on the best way to do it. If we want to do more, we obviously have to reach out to market segments where there is more liquidity, and that is why the government-bond market is the baseline option, which doesn't necessarily mean we would only buy government bonds”.

There may be at least few conclusions from Coeure comments. Firstly, the hawkish part of the ECB, which is lead by Germany, clearly lost its influence. Secondly, the probability to introduce the QE is getting closer to one, what can clearly mean that the incoming weeks for the euro may be pretty hard. It is also possible that we may see the concrete commitment to the bond purchase operation as early as in January. It should weight on the single currency pushing the EUR/USD closer and closer to 1.2000 at the beginning of the year.

Switzerland and Russia again

A pretty interesting info from Russian Central Bank (CBR) hit the wires today. It turned out that the MPC didn't intervene on the market either on Tuesday or Wednesday. It is pretty surprising because the CBR was on the market almost every day in December and sold around 10 billion USD to support the currency.

In the recent days, as we have reported, the hard currency was also sold by the finance ministry, but it seemed that it would have rather support the CBR action with its mere 7 billion USD. Such strategy should bring the other solution. Maybe Russians played va banque – they allowed the speculators to play the last game between themselves assuming that in such volatile market many of them experience heavy losses. Whether this move was successful or not, we have to wait at least for few weeks. If the USD/RUB stays below 65 it should be concluded that the CBR made a right choice.

For many it was also surprising that the EUR/CHF didn't rise further after the SNB introduced a negative deposit rate. It was also fairly quickly commented by the central bank chief. Thomas Jordan said that “many market participants have to yet fully comprehend the measures – how strong and how drastic the will be and what burden they will pose on large account holders”.

It is worth remembering the that negative deposit rate will be executed on January 22nd On the same date the ECB meeting is scheduled. The idea is not really hard to predict. The SNB assumes that Draghi is going to introduce or at least clearly outline the plan regarding the bond purchase operation. Jordan actually suggests that the changes on EUR/CHF should be visible earlier.

Foreign market in a few senteces

It seems that the market, after the correction mood, come backs to the medium trends – weaker yen and euro combined with a stronger dollar. There is also a pretty interesting situation on the EUR/CHF which may be really attractive taking into the account how determined the SNB is. It may result in stronger rebound on the euro-franc.

Interesting November meeting. Speculation on the rise

Yesterday the NBP published most recent minutes and the November voting results. This time the latter seems to be much more interesting. It turned out that the MPC was really close to cut the interest rates by 50 bps one and half month ago. Four members, including the governor, (Belka, Osiatyńśki, Bratkowski, Zielińska-Głębocka) voted for a half percentage point cut. The fact that from the dovish camp Chojna-Duch was excluded had been obvious shortly after the meeting ended. But the ifno that the 50 bps cut was so close can be pretty surprising. Most anticipated a 25 bps decrease. It is still not really clear why Chojna-Duch didn't vote for a cut especially that she confirmed her dovishness in September when favored 50 bps only with professor Osiatyński.

Moving to the current situations it is worth noting how the zloty slided recently. The EUR/PLN has tested 4.28 and USD/PLN is heading towards 3.50. The PLN weakness is pretty broad and it is not a result of the changes on global currency market. It is also surprising that the zloty weakened more to the euro than the rouble despite the fact that Russian economy is hit by a real crisis.

It is also worth noting that the zloty weakness is not really related to the rouble currency. The impact from the production data or MPC voting scheme wasn't that significant to put such a strong pressure on the PLN. As a result it seems that the most impact is created by a short-term speculative capital which exploited the overall turmoil that targeted the PLN. It may be also supported by the year end involvement of the real money or more aggressive selling pressure of the derivatives.

Regardless, however, what has the real reason the increased volatility may push the EUR/PLN above 4.30. On the other hand more severe PLN weakness should bring attention of the central bank which may use some verbal intervention. The BGK also may be pretty keen to sell some foreign currency and receive more zlotys. To sum up in the incoming several days the EUR/PLN should return toward 4.20 range but the incoming hours or the beginning of the week may be still pretty tense with high odds to test the 4.30 mark.

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

Range EUR/USD 1.2250-1.2350 1.2150-1.2250 1.2350-1.2450
Range EUR/PLN 4.1600-4.2000 4.1600-4.2000 4.1600-4.2000
Range USD/PLN 3.4600-3.5000 3.4600-3.5000 3.4600-3.5000
Range CHF/PLN 3.4600-3.5000 3.4600-3.5000 3.4600-3.5000

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

Range GBP/USD 1.5650-1.5750 1.5550-1.5650 1.5750-1.6850
Range GBP/PLN 5.2500-5.2900 5.2300-5.2700 5.2700-5.3100

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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