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Daily analysis 31.01.2014

, author:

Marcin Lipka

A strong US GDP reading pushes the dollar higher and keeps the pressure on the EUR/USD. The Russian central bank announces “interventions without quantitative limitations” and the Turkish MPC suggests that more tightening can be on the horizon. Polish currency slide has been speeding up.

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

  • 11.00 CET: Inflation reading from the euro area (survey around +0.9%). The data can be important regarding the further ECB policy easing.
  • 15.45 CET: Chicago PMI for the US (survey 59.5).

The States, Turkey, and Russia

The US economy expanded in the 4th quarter of 2013 by 3.2% on the annualized basis (expectations were around 3.0%). The reading was not only pretty, but also the composition looks pretty healthy. According to the data published by Bureau of Economic Analysis, consumption attributed around 2.26 percentage points (the highest since Q4 of 2010) to the GDP, whereas net export boosted the growth by additional 1.33 percentage points. A relatively small contribution was made by fixed investments (+0.14 percentage points), after pretty solid data in the precious two quarters (Q2 +0.96 and Q3 +0.89). There is still quite significant fiscal tightening. The government consumption decreased by 0.93 percentage points in the Q4.

Turkish Central Bank (TCMB) published on its website a broader statement after the Wednesday's extraordinary meeting. The TCMB seems to be quite determined to fight inflation and calm the market turmoil. The last paragraph can be even regarded as an invitation to more rate hikes (“The Committee indicated that tight monetary policy stance will be sustained until there is a significant improvement in the inflation outlook. If deemed necessary, liquidity policy may be tightened further in order to invert the slope of the yield curve”). Yesterday the lira fairly stable after huge swings on Wednesday when the EUR/TRY pair rose from 2.95 to 3.15 finishing the day around 3.08.

The market turmoil was also noticed by the Russian Central Bank (CBR). In the statement published on its website the CBR reminded that the standard interventions on currency market do not exceed 400 million USD. However, when the currency basket (euro and dollar) does not return to the 7 ruble band then the “Bank of Russia performs interventions without quantitative limitations until the value of the dual-currency basket returns to the operational band”. The CBR also informs that on January 27th the central bank $1.14 billion worth of foreign currency. Moreover, the CBR also published that information on its currency reserves which stand at almost $500 billion. It account for around 1.5 of import (IMF suggest that the safe level is around 6 months). Taking into the account huge reserves and still a significant current account surplus, so the further ruble slide is mostly a decision of the central bank.

Summarizing, the dollar should be prone to strengthen further – bullish Fed's message, solid macro data and turmoil on the EM currencies. In result the EUR/USD can start the following week under 1.3500 level.

More weakness on the zloty

The zloty has been getting more volatile. Currently the EUR/PLN is testing the 4.24 level. The Polish currency was also relatively weak comparing to the other EM pairs (lira, forint or ruble corrected yesterday). It can mean that the speculative capital tries to destabilize the situation and despite solid fundamentals the PLN can be under a significant pressure. It will also be important at what level we end the week. Finishing the Friday's session above 4.24 can push the EUR/PLN pair toward 4.30 next week. On the other hand if we slide toward 4.22 the following days should be much calmer.

Summarizing the PLN will still be depended on the EM conditions. It is also worth to note whether the zloty is weaker than other developing currencies. It the answer is positive it can result into further much deeper weakness.

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

Range EUR/USD 1.3550-1.3650 1.3650-1.3750 1.3450-1.3550
Range EUR/PLN 4.2000-4.2400 4.2000-4.2400 4.2000-4.2400
Range USD/PLN 3.0900-3.1300 3.0600-3.1000 3.1200-3.1600
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 1.6450-1.6550 1.6450-1.6650 1.6350-1.6450
Range GBP/PLN 5.0600-5.1000 5.0800-5.1200 5.0400-5.0800

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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