Daily analysis 29.04.2014

, author:

Marcin Lipka

Less intense sanctions and retreat of Russian soldiers from the Ukrainian boarder improves the sentiment in the morning. Inflation data from Germany in centre of attention. British GDP important to the pound. Good data from Sweden enforce the krona. Zloty takes advantage of sentiment's improvement and returns to the limits of 4.20 per Euro.

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

  • 10.30 CET: Reading of GDP from United Kingdom (estimations +0.9% q/q).
  • 14.00 CET: Inflation HICP from Germany (estimations +1.3% r/r).

Politics. Inflation. GDP. Krona

On Monday morning the sentiments on the markets were still not good. The investors remembered the weekend anxieties of disturbance increase in the East and decrease of Russia's rating. Also the informations about increasing the sanctions towards Russia were awaited. These, however, appeared to be much less intense than some had expected. The limits imposed on Moscow by Washington (Brussels will reveal its list today but it will probably be even milder) are modest and contain but one significant name – Igor Sechin, Rosneft's president. Both Russian stock market and rouble reacted positively to this information. The rouble returned to its levels from Thursday (which was before rating's decrease by S&P). Better sentiment was also sustained by the information from Russian Minister of National Defence, about the return of soldiers from their posts near the Ukrainian boarder to the barracks.

Today's information from Germany may be a good forecast before the Wednesday data about inflation from the Euro Zone. According to Bloomberg survey, the prices at our western neighbour are supposed to grow by 1.3% r/r. The readings above this limit increase the probability of higher HICP from the whole area of common currency and the other way round (co-relation between these two figures is very strong, although of course there were moments, when the growths and descends in these two regions were not convergent). Higher inflation means a smaller chance for monetary policy's easing in Euro Zone, thus a positive signal for EUR.

Yesterday's pound taking off caused by the information and transactions in pharmaceutical sector has been lifted in a significant degree. Today, however, GBP/USD has a chance to take off once again to the new long-term peaks after GDP data. According to economists' estimations, the British economy in the first quarter of 2014 was developing in the tempo of 0.9% q/q. Each reading above this limit, increases a chance for discussion about faster than expected tightening of monetary policy by the Bank of England (currently this moment can be scheduled for the breakthrough of first and second quarter of 2015) and it should enforce the pound and lead it closer towards the limit of 1.7000.

Recently I have mentioned the situation of Swedish krona and the suggestions of the central bank that it might lower the money rates (due to the economy's balancing on the boarder of deflation) on one of upcoming summits (two out of six members voted for the cutting). This fact influenced negatively also on the evaluation of local currency, which weakened to two-years old pits in relation to Euro. However, yesterday's data about retail sale, which instead of increasing by approximately 3% was +5.1% r/r, brought a slight break (descending) on EUR/SEK pair. Thus it decreases the chances for an action from the monetary authorities side and helps the local currency. In general, it is worth to observe the actions of Swedish Riskbank, which on one hand has the perspective of significant acceleration of GDP growth ahead (which is a factor that does not support the easing of monetary policy) and on the other, maintaining deflation environment (encouragement towards lowering money rates) and constant boom on flat market combined with increasing mortgage debts (mild money policy does not support the stabilisation of this market).

In conclusion, EUR/USD still has a big chance to cross the level of 1.3900 this week. Just as I marked in previous comments, macro data cannot prevent it from it (inflation should be at least coherent with expectations and the readings from USA can not be too good). However, if the HICP reading from Germany will be convergent with the forecasts, we should remain in the middle areas of 1.3850.

Return to the limits of 4.20

Recent hours is decisively calming down of the situation of Polish currency. Thanks to less intense than expected American sanctions towards Russian companies and businessmen from the authority circles and also because of Russian soldiers' retreat from the Ukrainian boarder, EUR/PLN returned in the areas of 4.20. Still a good measure of risk for our part of Europe and perspectives for zloty is the evaluation of rouble. It is RUB, which in our region mostly reacts to both deterioration and improvement of sentiment on the line Moscow – Washington - Brussels.

Today we should have a very calm trade on the zloty pairs. EUR/PLN pair should maintain close to 4.20, most of the transactions on franc, with a big probability, will be held slightly below the level of 3.45 and the dollar will remain in limits of 3.03. More varieties are only expected on GBP/PLN. If we receive good readings from UK, we will be able to test last maximums in limits of 5.12.

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 Sp. z o.o is prohibited.

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