Daily analysis 24.12.2015

, author:

Marcin Lipka

The EUR/USD performance at the end of December in recent years. Is is possible that moves in that period can last for longer. Stabilization on the EUR/PLN should be the base case scenario even though the last year was very volatile.

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

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

The past gives some hints

Today we want to not how the EUR/USD preformed during the end of recent recent. This period is usually characterized by lower liquidity and some chaotic moves. However, it is not common to observed that moves generated in that period are set to last for longer.

In the recent 5 years periods at the end December were twice dominated by abrupt rises of the EUR/USD. The market was fairly stable in 2012 and followed the trend in 2014. Once investors pushed the pair significantly lower at the end of the year.

The EUR/USD appreciation was observed at the end of 2010. Overall it wasn't a good year for the common currency as the euro lost 6.7% to the dollar. It was fear about the currency union condition. But the last days in 2012 pushed the pair higher from 1.31 to 1.34.

One of the reason why the EUR jumped to the USD were comments from Angela Merkel. The chancellor promised that she would secure the union as it is the fundamental for the German economy. Moreover the Luxembourg Prime Minister Jean-Claude Juncker rejected fears of the euro claiming it is the most solid currency in the world.

Strong EUR/USD appreciation was also observed on December 27th of 2013. The EUR/USD rose in one day from 1.37 to 1.39, while at the same day it reduced most of the gains. This period was dominated by hawkish comments from Jens Weidmann.

The ECB member and Bundesbank chief, according to Bloomberg, told Bild newspaper that low interest rates may slow political reforms and create speculative bubbles. This comments were not new but at that time the market was “freshly” after the interest rate cut (November) and Wiedmann comments were aimed to reduce expectations for future reductions.

On the other hand during 28-29 December of 2011 there was a significant slide on the EUR/USD from 1.31 to 1.29 after a long period of stable trading. At that time the move was partly generated by technical issues – a slide below 1.30 after a long calm trading – and some fears about Italian 6-months bills auction.

It was quite nervous period for the debt securities in peripheral countries. In November 2011 investors were demanding yields around 6.5% for 6-months bliss. The December auction was mubh better – the yields were halved. But the fears created some risk off and pushed the EUR/USD lower.

At the end it is worth noting that after 2008/2009 crisis year end events didn't have significant impact for the EUR/USD either in medium or long term. The earlier trends were continued and moves around 200-300 pips were lost in history of charts

The foreign market in a few sentences

The EUR/USD as fairly chaotic yesterday. Firstly the EUR/USD fell in line with rising stock markets and energy commodities. But the second part of the US session was positive for the euro despite that equities kept its gains. It is hard to predict whether the market is getting ready for a significant appreciation during the following days or the “shorts” would be able to secure their positions. Overall, as we presented in the previous paragraphs, the odds that holiday trading can change trends, are fairly small. At the beginning of the year the dollar should regain some ground unless the US data disappoints or the capital market turns sour.

History on the zloty

The history of holiday trading in the last 5 years was much less volatile on the zloty than on the EUR/USD. The only period when the market experienced some unprecedented swings was observed in last December.

From December 23rd to 26th the EUR/PLN rose from around 4.25 to 4.40. It means that the local currency lost around 4 percent to the euro. What is more interesting at the same time the Hungarian forint, which is highly correlated to the PLN, slided less than 1%. The global situation was also fairly calm in that days.

We can conclude that the move was generated by the portfolio capital and was aimed to crated some significant gains on a certain strategy (ex. activate some option strategies). Assuming low volatility at that time even some fairly small orders were able to crate significant changes.

On Monday after Christmas the EUR/PLN fell below 4.30, but it was still quoted for several days on elevated levels. Later in January there was an event regarding Swiss franc what also created some unprecedented volatility on the markets. But the following weeks were much calmer and pushed the zloty higher to the euro due to the ECB QE operation. The EUR/PLN tested 4.00 level in April.

There is a slim chance that the volatile trading may be repeated this year. Probably both sides took a lesson from last December movements and the PLN trading should be fairly calm in the following days.

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

Range EUR/USD 1.0850-1.0950 1.0750-1.0850 1.0950-1.1050
Range EUR/PLN 4.2200-4.2600 4.2200-4.2600 4.2200-4.2600
Range USD/PLN 3.8800-3.9200 3.9200-3.9600 3.8400-3.8800
Range CHF/PLN 3.9000-3.9400 3.9000-3.9400 3.9000-3.4900

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

Range GBP/USD 1.4950-1.5050 1.4850-1.4950 1.5050-1.5150
Range GBP/PLN 5.8400-5.8800 5.8000-5.8400 5.8800-5.9200

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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