Daily analysis 28.10.2013

, author:

Marcin Lipka

The EUR/USD is still around 1.38. Economic data and expectations regarding the upcoming Federal Reserve meeting should be shaping the US dollar. The Polish zloty is still stable – around 4.18 per the euro. Professor Bratkowski, the MPC member on the future interest rate policy.

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

  • Already published German Ifo index.
  • Daylight saving time – US data will be published an hour earlier this week.
  • 14.15 CET: Industrial production in the US (survey: +0.4% m/m, September data).

Solid week for the EUR/USD. Federal Reserve. Economic data

Last week was quite successful for the EUR/USD. The most traded currency pair was supported by weaker-than-estimated US data (jobs, PMI) which put pressure on the greenback. Furthermore, the euro remained steady despite some disappointing macro data from Europe (both PMI and the Ifo fell short of expectations). In result the EUR/USD gained around 120 pips in a week and closes around 1.38 level.

In the coming days the market sentiment will be shaped by The Federal Reserve statement and macro data. The most important day should be Wednesday, when the ADP report is scheduled to be issued and the FOMC is publishing its 2-day discussion results. Usually the private agency job report does not bring as much attention as the NFP data, but this time can be different. Firstly it is one of the first reports which can show how significant for the economy was the government shutdown. Secondly the October Payrolls are published on November 8th whereas ADP releases its surveys 9 days earlier (usually the difference is only two days). The market, then can move quite rapidly having in mind that the Labor Department estimates are quite distant. Regarding the Federal Reserve investors would like to get a clue whether the December tapering is still in the game or we all should focus on 2014. In the Wednesday's statement we will be looking for suggestions how the economy is currently performing (similarly, slightly worse due to fiscal issues, or there is still not enough data). More negative comments from the FOMC mean lower probability for tapering in December. In result it should keep the dollar under pressure. On the other hand we have also to remember that the EUR/USD has already partially priced in the March 2014 tapering. Therefore, the Fed will have to move its expectations toward 2014 to keep the 'greenback' week (probably not in the coming statement but in October minutes it will be possible).

Summarizing, we should not expect any ground breaking events today (new EUR/USD highs or a stronger slide). Investors should wait for Wednesday, when both the Federal Reserve statement and ADP report can put some light on the economy and the future tapering decision (whether it is sill possible to begin the asset purchase reduction in December or the expectations are officially moved toward 2014).

No major moves on the zloty. Bratkowski, MPC member on interest rates

Last week the zloty had a short period of weakness and briefly moved to around 4.1900. However, but in line with expectations, it returned to 4.18 level at the end of the Friday's session. The Polish currency should remain stable (at least till Wednesday) and the 4.16-4.19 range should be preserved.

On Friday we got more suggestions on future monetary policy. The MPC member, Andrzej Bratkowski said (as Polish Press Agency reports) that “Taking into account what I think about the economy today, I would vote in favor of the first rate hike in Q4 2014," Bratkowski said, underlining "it is not a promise, it is only a forecast”. Bratkowski is considered as the most dovish Committee member and, what is interesting, his views are in line with Adam Glapiński (hawk) recent statements. It seems that there has been forming a broad consensus on the monetary policy – any rate hikes are moving toward the end of 2014.

Summarizing, the zloty should remain stable not only the the euro, but also to other currencies – dollar (slightly above 3.00), Swiss franc (around 3.38) and to the pound (4.90). More volatility is expected on Wednesday.

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

Range EUR/USD 1.3650-1.3750 1.3750-1.3850 1.3550-1.3650
Range EUR/PLN 4.1600-4.2000 4.1600-4.2000 4.1600-4.2000
Range USD/PLN 3.0300-3.0700 3.0000-3.0400 3.0600-3.1000
Range CHF/PLN 3.3800-3.4200 3.3800-3.4200 3.3800-3.4200

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

Range GBP/USD 1.60500-1.6150 1.6150-1.6250 1.5950-1.6050
Range GBP/PLN 4.8700-4.9100 4/8900-4.9300 4.8500-4.8900

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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