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Daily analysis 28.04.2014

, author:

Marcin Lipka

EUR/USD clearly took off during morning trade in Europe. A week full of interesting macroeconomic publications. Negative comments about Russian assets. Zloty weakens again and we are beginning to cross the limit of 4.21 per Euro.

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

  • No major macro news that can affect the analyzed pairs.

Higher. Days to come. Rouble

Despite some market observers' anxieties, no bigger increase of tension in Ukraine occurred during the weekend. The regular Russian armies are still far from real intervention on our eastern neighbour's territory. However, the situation may get more complicated due to the upcoming election on May 25th. It is not excluded that the government military forces might want to stabilize the situation in the regions controlled by pro-Russian fighting units before the voting. This may cause victims and also a deeper commitment of Moscow (although still without the usage of regular army). Despite that these events are still a month away, Kiev might want to take control of the situation many days before opening the polling stations and it is worth to remember about this fact.

Coming to the events from recent hours, the situation on EUR/USD looks more and more interesting. Its mysterious morning growth in the areas of 1.3870 may be connected to the offer of American Pfizer to take over the British pharmaceutical giant Astrazenec. This deal should be worth approximately 100 billion dollars, and part of it would be financed in cash. Thus in order to buy Astrazenec shares (denominated in pounds), there is a need for purchasing GBP and selling USD. GBP/USD pair reacted quickly to this information and shortly after we could also observe a jump on EUR/USD (dollar, which is supposed to be sold and will be weaker, should cause a relatively higher evaluation of Euro). However, such stories usually do not have a breakthrough meaning for the currency market. That is why macroeconomic informations should be most important in the upcoming week.

And they appear to be very interesting. Stepping forward is Wednesday's publication of inflation data from Euro Zone (tomorrow's HICP data from Germany can be some hint). According to Bloomberg consensus, in April the prices on the common currency market should increase by 0.8% r/r. Each reading above these estimations should be advantageous for Euro, whilst it decreases the probability of further monetary policy's mitigating by ECB. Wednesday will also be interesting, because of solid portion of informations from USA. First of all, it will be the first estimation of GDK for the previous quarter, and the results of FOMC summit and also the publication of ADP report (a private study about the situation on labour market). The week will end with a publication of official unemployment rate and payrolls. Considering the amount of events, it will be difficult to indicate the main currency pair's behaviour direction. But observing its general bullish sentiment, one can risk a statement that without the interruption of macro publications (inflation will be close to consensus, data from USA will not surprise positively and Fed will not become more hawkish), we can expect the growths above 1.3900, and even a test of almost three years old peaks in limits of 1.4000.

Last week's cutting of Russian rating to the last investment level (BBB minus) by Standard & Poor's agency and another increase of money rates by the central bank (in order to prevent the further growth of inflation and rouble's weakening), provoked many negative comments about Moscow's economic situation. “The Wall Street Journal” published one of most interesting opinions by quoting Standard Bank's economist, Tim Ash. The chief of emerging markets strategy stated, that “what is going on in the Russian-Ukrainian relations and between Russia and West is negative for Russia's credit reliability – bad for the increase (in short and long term), bad for the investments, bad for the capital's inflow and bad for wider political, economical and institutional reforms”. Ash also claims, that he sees “a further brain-drain of young, liberal and open to reforms Russians, which will clearly regress the country”. It is difficult not to agree with such opinions, however we constantly have to remember, that Russia has mighty supplies of raw materials, surplus on current account, practically no GDK debt and budget deficit, low unemployment and 500 billion USD of currency reserves. So if a complete block of Moscow will not occur (similar to what had happened with Iran; extremely unlikely scenario) and the prices of oil and gas will remain on the current levels, the attractive evaluations of Russian assets will attract more courageous investors, irrespective of Kremlin's deteriorating image. Because of this, rouble's weakening in a longer term is very unlikely.

Zloty gives away another 0.01 PLN

Zloty constantly behaves weak. Despite that nothing new had happened in Ukraine during the recent weekend, PLN begins the Monday's session from the lowest levels. Cutting of Russian rating may still have a negative influence on Polish currency. However, this matter should not be crucial in the upcoming days. Thus it is not excluded that a part of foreign players begins to be seriously anxious if the Polish export to the East weakening may have not only a short-term character, but also mid-term. It would deteriorate among others, the result of current account, which is at the moment observed by the market participants with a quite big attention.

The return of EUR/PLN below 4.20 in the upcoming days is very hard to expect, and in the upcoming hours the maintenance of slight aversion toward zloty, which should be indexed in areas of 4.21 – 4.22 per Euro, will remain a base case scenario. The indexes of franc towards PLN will also look weak. We will remain above 3.45 with a threat of even reaching the limit of 3.46 – 3.47. Only thanks to the increases of EUR/USD, the dollar-zloty pair should be relatively low – near 3.03.

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 4.1800-4.2200 4.1800-4.2200 4.1800-4.2200
Range USD/PLN 3.0300-3.0700 3.0100-3.0500 3.0600-3.0800
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 1.6650-1.6750 1.6750-1.6850 1.6550-1.6650
Range GBP/PLN 5.0500-5.0900 5.0700-5.1100 5,0300-5.0700

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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