Daily analysis 26.02.2015:
Emotions after Yellen's appearances and Greece related problems begin to fade out. Important inflation reading from USA. Economic and social situation in Ukraine are getting more and more serious. EUR/PLN pair is testing the level of 4.15, and CHF/PLN is maintaining slightly above 3.85. A chance for a stronger zloty will appear at the beginning of March.
Most important macro data (CET). Estimations of macro data are based on Bloomberg's information, unless marked otherwise.
- 14.30 CET: Inflation data from USA for January (estimations: minus 0.6% m/m, minus 0.1% y/y; with the exclusion of fuels and food +0.1% m/m, and +1.6% y/y)
- 14.30 CET: Orders for durable goods in USA from January (estimations: +1.6%)
- 14.30 CET: Applications for unemployment benefits in USA
Fading out the emotions
Second day of Janet Yellen's speech in the American Congress, did not bring any additional impulses. While answering the questions of House of Representatives members, chairwoman of American Fed repeated a lot of matters from her Tuesday appearance. She also concentrated on the problems, which were not related with monetary policy. As a result, we have not noticed any bigger movements on the pairs related with the dollar.
The emotions related with Greece are also slowly fading out. Despite that there were a lot of articles concerning this topic in financial press, the market's general approach assumes relative calmness, and the information from Greece should not have a bigger influence on the European currency for the upcoming 4 months.
The only thing that can be a certain risk, is the process of accepting the modified help plan, by the governments or parliaments of Euro Zone's countries. However, considering the earlier suggestions of e.g. German politicians, whose attitude towards the government in Athens was most restrictive, the support of Euro Group is actually certain.
What is interesting, the factor that can slightly increase the uncertainty, is the voting in Greek parliament. Minister of environment and energy already publicly expressed his objection towards the establishments of Euro Group. Quoting the interview with Panagiotis Lafazanis for “Te Nea” newspaper, “Financial Times” informs that the government member said, that despite the agreement of minister of finances for continuing initiated privatisation projects, he will not agree on selling national power stations or refineries.
In general however, the objection opinions that appear in Europe or Greece itself, probably contain more elements of local policy, than a real danger, that the understanding will be rejected by one of the countries.
Yesterday's appearance of Yellen can be generally received as neutral. March summit of Federal Reserve on the other hand, is getting more and more important, despite that its chairwoman tried yesterday to decrease its meaning. Deleting “patience” from the communicate can “frighten” some market participants, even if it will be soothed by relatively doveish statements.
Crucial inflation reading from USA
A moment of suspension on dollar related pairs, can be disturbed after publication of today's data from the other side of the ocean. The investors will mainly concentrate on inflation publication. According to economists' estimations, it dropped in January to minus 0.1% in year to year relation.
However, the data with exclusion of fuels and food, will be much more important than the group reading. So called basis CPI should be maintained on the level of +1.6% y/y and +0.1% m/m. So called basis CPI should be maintained on the level of +1.6% y/y and +0.1% m/m. However, if we would see the exit of this index in the areas of 1.4% y/y and minus 0.1% m/m, the chance for American currency's wear off should clearly increase, and EUR/USD ending the session above 1.1400, would became a basis scenario.
Also the data about orders for durable goods and weekly applications for unemployment benefits will be published at 14.30 CET. The above readings should have significantly smaller influence, than the publication about prices change. However, they can wear dollar off more, if it appeared, that the data are significantly below the estimations.
Economic and intel chaos in Ukraine is getting more dangerous
It is difficult to understand, what game are the Ukrainian authorities playing. Yesterday we wrote about persecutor charges putted forward to the chairwoman of the central bank. This was based on the information from pro-government television, “Ukraine Today”. It appeared later, that it was not true, but the correction was presented faster by the Russian media (“TASS” agency among others), than the Ukrainian ones.
There was also a disturbance between the government and central bank. In the morning the chairwoman of monetary authorities announced the suspension of purchasing foreign currencies by commercial banks for their customers. On the other hand, prime minister of Ukraine did not approve these actions in the afternoon, and after few hours the limits in currency trade, has been withdrawn by Valeria Gontareva.
There is also a similar chaos on the currency market. According to the central bank's data, the transactions of dollar exchange occurred on “interbank”, in the limits of 21 hryvnias. Today on the other hand, the banks quote USD between 32 and 34 hryvnias. Also the rates in unofficial exchange have been completely disturbed, and the difference between the best purchase and sell offers, reached even 30%.
This intel and economic chaos does not foretell anything good for the future. Despite that the international institutions are trying to calm the situation down. Yesterday, the spokeswoman of IMF said, that a significant part of help, which should be accepted on March 11th, will be passed on to the authorities in Kiev at once.
However, considering more and more serious situation of our eastern neighbour, difficult to understand decisions of central bank and government, and dramatically increasing poverty in society (minimum wage by the current rate amounts 40 USD, and the average 100 USD), there is a risk, that if the western means will not arive quickly enough, the pro-reform population can quickly turn against the current authorities.
Few words about foreign market
The most important readings of the day will be the data about inflation from USA. If the prices with exclusion of fuels and food will increase slower than the market expects, there is a big probability, that we will finish Thursday's session on EUR/USD above the level of 1.1400. Dollar's wear off can extend, and convert to the increases of other pairs related with the American currency (AUD/USD, GBP/USD). Especially if the market will start speculating about the risk of weaker reading from the labour market. This publication is planned for next week.
MPC decision and European QE
The sentiment on currencies from our region is clearly improving. Today forint enforced itself in relation to euro by almost half percent. Zloty is also stronger in relation to other currencies, and EUR/PLN pair clearly has an appetite to test the strong support on the level of 4.15, and go towards the annual minimums, located close to the limit of 4.10.
The purchase of treasury bonds by EBC that will start in March, should be a big help for this scenario. A part of the capital that is searching for higher return rates, can be located in Polish assets. This should cause a clear appreciation of PLN at certain point.
It appears, that the upcoming MPC summit can be also positive for national currency. If the Council would decrease the interest rates by only 25 basis points, and took the neutral approach, we could expect a clear exit of EUR/PLN below 4.15 in second part of next week.
In conclusion, the sentiment towards national currency is still positive. However we are not expecting, that EUR/PLN will effectively test the level of 4.15 by the end of the week. We will have to wait for a clearer enforcement in relation to euro, until the good PMI readings on Monday, and relatively neutral approach of MPC towards monetary policy.
Expected levels of PLN according to the EUR/USD rate:
Expected GBP/PLN levels according to the GBP/PLN rate:
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