Daily analysis 28.12.2015

, author:

Marcin Lipka

The Financial Times surveys regarding future actions of the ECB. Yves Mersch thinks that further monetary easing is possible. This month the zloty is the strongest currency among the emerging, as well as the developed markets.

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

  • No macro data that could have a significant impact on the analysed currency pairs.

EUR/USD is getting closer to 1.10

The EUR/USD is getting closer to the area of 1.10 for another time this month. However, it is worth noticing that at the moment there are really no arguments for further appreciation of the main currency pair. Today the profitability of the American two-year bonds reached the level of 1.02%. This is their highest value for 5 years. This may also suggest that investors are becoming more and more convinced about the inevitability of further monetary tightening in the USA.

At approximately 10.00 CET the Bloomberg agency quoted excerpts from the interview with Yves Mersch, conducted by the International Business Forum. The ECB representative who is in general considered more hawkish than the consensus, said” “we may increase (the monetary easing – author's footnote) at any moment if it is necessary. We still have the ammunition and the power to do it”.

Regarding the assets purchase Mersch said that “the program will be continued for as long as it takes to reach a stable goal”. He also claimed that “the deposit rate on its current level of minus 0.3% does not have to be a lower limitation”.

In general, it is clear that even the ECB representatives who are not considered dovish, are trying to maintain the perspective of further monetary easing. However, there is a small chance that the central bank would try to undertake any specific actions in following months after December's decision.

Financial Times' surveys

Surveys conducted by the Financial Times among economists, are somehow denying Mersch's words. According to this study slightly less than a half of 33 respondents, claims that “the ECB will do nothing next year”. Rest of them thinks that the ECB will expand the QE, or decrease interest rates. However, they think that it is very unlikely that the central bank would “radically transform the current policy”.

On the other hand, the Financial Times also informs that 18 out of 31 economists expect a depreciation of the EUR/USD in 2016, to the level of 1.00. Somehow the above mentioned surveys can deny each other – a smaller chance for a monetary easing in the eurozone should not wear off the common currency.

At this point it is worth looking at the other side of the EUR/USD, which is of course the American dollar. If the Fed continues to tighten the monetary policy, the difference between the American and the most credible economies' in the eurozone interest rates will probably grow. Thus, the strategy of borrowing the euro, selling the European currency and depositing it in the American treasury bonds, can still pay off. A similar trend may also be observed regarding other currencies, which have a relatively high rate, and a relatively low risk.

Few words about the foreign market

A small liquidity on the market increases the likelihood of more chaotic movements. If we also add here an increase in aversion towards risk (e.g. weaker quotations from the United States), the EUR/USD may be even above the level of 1.10 at the end of the year.

Zloty keeps the gained territory

Since the beginning of the month, the zloty gained 4.6% to the dollar. According to the Bloomberg data this is the best result among the 31 currencies of the developed and emerging markets. On the other hand, the last places on the ranking are occupied by the Argentinian peso (a release of its rate caused its depreciation by 25%), and the Russian rouble (more than 8% loss).

This should not change during the following days, unless there is a significant deterioration in the situation on the global market. Additionally, the PLN market participants are anticipating the comments from the future Monetary Policy Council members. In the interview conducted before Christmas by the Reuters agency with professor Ancyparowicz (reigning party's candidate for the MPC representative), she said that “it is safer not to introduce cheap loans as the ECB did”. Statement for Reuters only confirms that Ancyparowicz is not a supporter of changes in the monetary policy, what suggested in the past interviews.

The following hours on the basic zloty pairs should be relatively calm. There is a small chance that the EUR/PLN would clearly deflect from the area of 4.25 by the end of today's trade.

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 5.8000-5.8400 5.7600-5.8000 5.8400-5.8800

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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