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Daily analysis 29.01.2015

, author:

Marcin Lipka

Neutral Fed's meeting decreased the appetite for a stronger correction on the dollar. Newly elected Greek government withdraws from previous reforms. The franc is significantly weaker toward the euro. The US and the euro zone data in focus. Capital inflow to the zloty is supposed to boost Polish currency? CHF/PLN below 4.00 and the EUR/PLN around 4.23

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

  • 14.30 CET: Jobless claims from the US (survey: 300k).

No surprises from the Federal Reserve

Yesterday we suggested that opinions claiming more dovish Fed might be inaccurate. The Federal Reserve kept the perspective to increase interest rate in mid-2015 noting a significant economic progress. It strengthened the dollar and push the EUR/USD lower below 1.1300.

In line with expectations Janet Yellen and her colleagues kept the promise to be “patient” before they start normalizing the monetary policy. It means that at least for two months the rates are set to remain at zero level.

Concerning the US economy the FOMC was much more bullish than in October. The overall activity was raised from moderate to solid first time since the financial crisis ended. Additionally the Committee also noted a “strong” job market and that “recent declines in energy prices have boosted households purchasing power. All arguments should be considered as pretty hawkish and rather brining the Fed closer to the interest rates hikes.

Slightly more dovish were on the other hand comments on the inflation. “Inflation has declined further below Committee's long-run-objective, largely (previously “partly”) reflecting declines in energy prices. Despite the fact that there were no clear suggestions that lower CPI may push the Fed to wait longer to normalize the monetary policy it should be noted that “market-based measures of inflation compensation have declined substantially in the recent months”. However, we wrote that this time the Fed may “trick” the market and the fixed income instruments do not have to be particularly right regarding the prolonged period of lower interests rates.

Greek's game

Just after the new Greek government was formed the new administration started to fulfill its election promises. The privatization program has been paused and it was announced that thousands of administration officials who had been fired during the austerity program are expected to get back their jobs.

This action goes against the agreement with Troika and previous government promises. Greeks are also looking to establish better contacts with the Kremlin what was actually event picked up by the Russian administration before the elections results. The agriculture ministers offered Greece that if Athens withdraws from the UE the sanctions on food are going to be lifted.

It is hard to say whether it is only a negotiation strategy of the new administration or Athens is really on the verge of changing its whole policy. Currently the first scenario seems to be much more probable especially that the finance ministry is talented economist who wrote several books on “game theory” which is a solid base knowledge of more complex negotiations.

Foreign markets in a few sentences

The EUR/CHF appreciation helped the EUR/USD to return toward 1.1300. It does not mean that the dollar is set to weaken in the following hours. The market is going to wait for the Friday's data on US economy and euro zone inflation. Much more important is going to be the GDP from the States. If it rises above 4.0% we should to expect more “greenback” appreciation.

Capital inflow to Poland

The Bloomberg agency “speculates” whether the zloty is going to be a good destination for the portfolio capital inflow. This may be the case if the MPC does not cut interest rates claims PineBridger investments managing 73 billion USD on fixed income instruments.

We have noted that many times in our analysis. As a result the MPC will be closely looking on the zloty rate and if the EUR/PLN remains above 4.15 till the February rate meeting than governor Belka and his colleagues are going to wait till March to loosen the monetary policy.

It is also worth to note that the Committee meeting is on Wednesday. If the MPC remains pretty neutral (similar stance as in January) than in the current environment the capital inflow may be really fast and can push the EUR/PLN toward 4.10 in February. Moreover it should also push the CHF/PLN deep below 4.00 mark.

Today the CHF/PLN is going to be the most volatile pair. Weakening franc toward the euro in a scenario of relatively stable EUR/PLN increases the probability that the CHF/PLN is going to remain within 4.05-4.10 range for the whole day.

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

Range EUR/USD 1.1250-1.1350 1.1150-1.1250 1.1350-1.1450
Range EUR/PLN 4.2200-4.2600 4.2200-4.2600 4.2200-4.2600
Range USD/PLN 3.7500-3.7900 3.7700-3.8100 3.7300-3.7700
Range CHF/PLN 4.1400-4.1800 4.1400-4.1800 4.1400-4.1800

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

Range GBP/USD 1.5050-1.5150 1.4950-1.5050 1.5150-1.5250
Range GBP/PLN 5.6500-5.6900 5.6300-5.6700 5.6700-5.7100

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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