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Daily analysis 20.10.2015

, author:

Marcin Lipka

Statements of John Williams have no impact on the currencies. A report from the United States Department of the Treasury regarding renminbi. A record high surplus on the eurozone's current account. The zloty may remain under pressure.

Most important macro data (CET – Central European Time). Estimations of macro data are based on Bloomberg information, unless marked otherwise.

  • 14.30: Initiated investments on the real estates sector in the USA (estimations: 1.142 million).
  • 14.30: Building permits in the USA (estimations: 1.17 million).

Williams is getting closer to the tightening

Yesterday's interview with John Williams did not cause any reaction of the market, however it may be an important element of its communication with the Federal Reserve. Additionally, it was probably one of the last comments from the FOMC representative, before next week's meeting of the Fed.

Chairman of the San Francisco Federal Reserve clearly suggested that the beginning of monetary tightening in the USA is near. According to John Williams, the American economy will be developing at pace of 2% until the end of the year, and 2-2.25% in 2016. Williams still claims that the amount of jobs will continue to grow, and he even described the recent worse payrolls as a “healthy sign”. He also said that the preferred scenario assumes an earlier beginning of monetary tightening, and its milder path later on. This only confirms that Williams is a supporter of an increase in interest rates this year.

The only negative matter in the interview with Bloomberg were “very clear problems abroad”. They were in fact the main reason for keeping the cost of the money unchanged in September. However, now it is visible that the core of the Federal Reserve will probably try to decrease their hypothetical impact, if the FOMC decides to suggest the monetary tightening in December.

Eurozone's current account

The eurozone reached a historically high surplus on the current account – 3.0% GDP and 302 billion euros. This means that the economy of the eurozone is becoming more and more competitive, and should be a reason for an appreciation of the euro in a long term. On the other hand, it is worth noting that this surplus is mainly the work of Germany, and reduction in price of raw materials (including oil) causes a better balance on goods account.

However, in short and mid term the perspective of monetary policy between the eurozone and the USA (or the United Kingdom) is definitely more important. If, however, it appears that the UK nor the USA does not perform the monetary tightening in following months, and the EBC hesitates to extend the QE, a part of the market participants can focus on the foundations and use them to generate an appreciation movement on the euro.

Few words about the foreign market

Apart from the matters of monetary policy and current macro data, it is worth noting a report from the United States Department of the Treasury regarding the events on the currency market, which is published twice a year. It says that the Chinese currency may be under pressure due to the outflow of the capital. On the other hand, according to the Department the mid term foundations show that the CNY still has space for appreciation, despite the fact that the renminbi is under short term pressure. The main argument presented in the report is the maintenance of a high surplus on the current account. Combined with direct investments, it reached 240 billion USD, which is 5% in the first half of the year.

The macro calendar is quite poor today, and only the data from the American real estates market may put some disturbance to the main currency pair. Considering the recent resistance of the EUR/USD to depreciation, and average sentiments on the capital market, the majority of transactions will probably be performed in the area of 1.1350.

Zloty remains weak

Comparing quotations of the forint (which is not burdened with political matters), and the zloty (which anticipates elections to the parliament on Sunday) one can assume that the risk regarding the voting causes a depreciation of the Polish currency between 0.5% and 1%. This situation is likely to continue in the following days. On the other hand, when the elections are over it will be crucial, how quick will the winner be able to create a coalition that will be considered as a stable one by a wide market.

If this does not happen or there is a danger of minority government, the pressure on the zloty may significantly increase and the EUR/PLN may quickly test the area of 4.30. On the other hand, in a neutral scenario which assumes fading out of the political discussion, the zloty should stabilise below the limit of 4.25. That is of course, if the global matters and results of the national economy are close to consensus.

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

Range EUR/USD 1.1350-1.1450 1.1450-1.1550 1.1250-1.1350
Range EUR/PLN 4.2200-4.2600 4.2200-4.2600 4.2200-4.2600
Range USD/PLN 3.7000-3.7400 3.6700-3.7100 3.7400-3.7800
Range CHF/PLN 3.9000-3.9400 3.9000-3.9400 3.9000-3.9400

Anticipated GBP/PLN levels according to the GBP/USD rate:

Range GBP/USD 1.5350-1.5450 1.5250-1.5350 1.5450-1.5550
Range GBP/PLN 5.7400-5.7800 5.7200-5.7600 5.7600-5.8000

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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