Daily analysis 03.12.2014

, автор:

Marcin Lipka

More common faith in the interest rates increase on the other side of the ocean in mid 2015 and a series of information from the euro zone reduce the price of EUR/USD to its 2-years minimums. Evaluation of the Russian currency will go towards “a witty” level. Second part of the week will bring a lot of data. The zloty maintains its increases in relation to euro and franc. MPC will leave the money rates on unchanged level.

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

  • Between 12.00 CET and 14.00 CET: Announcement of the decision on the interest rates in Poland.
  • 14.15 CET: New jobs in private sector, based on ADP data (survey: 222k).
  • 16.00 CET: Communicate and press conference after MPC summit.
  • 16.00 CET: The US ISM from the services sector (survey: 56.5 points).

Minimums. A joke. Data

On Tuesday we have mostly concentrated on expectations concerning the monetary policy in euro zone. Rumours about introducing additional elements that will soothe the monetary policy, were affecting the common currency unfavourably, but as a unitary impulse, they were not able to reduce the price of EUR. Especially given that a lot of market's participants were waiting for the events planned for the second part of the week.

This time, however, some investors decided to play the situation differently. The dollar was very clearly connected to the market of debt instruments. Another excuse for a clearer increase of profitability on the other side of the ocean, were the Monday's events (ISM reading from the industry and Dudley's appearance). Logistic Managers' Index was better, what was already emphasized in yesterday's comment. However, the hawkish reception of Dudley's appearance, was quite stretched.

In his speech, the third most important person in Federal Reserve pointed out the fact of stable and deprived of bigger risk economic growth, which is powered by the real estate sector, consumers' expenses, better fiscal situation and positive effect of cheaper oil. On the other hand, however, Dudley noticed that inflation and employment are still below the Fed's goal and he also repeated his view on earlier increase of the interest rates brings some greater risk than the increase of mild monetary policy and “warming up of the economy”. He also did not change his expectations about the moment of first interest rates raise (middle of next year), which he based on the recent “prime dealers” survey (an institution, that conducts transactions directly with Federal Reserve) that indicates the date of increase on June 2015.

Perhaps some participants of the debt market expected that dovish members of Fed (Dudley is one of them) will underline that the lower oil prices will convert to inflation's level decrease (not only the basis one) and will cause the increase of a period of record cheap money. Due to the fact, that these expectations were not fulfilled, debt instruments begin to evaluate the tightening of monetary policy on the other side of the ocean more and more courageously.

The profitability of the two-years treasury bonds have increased up to 0.54%, and we are only by 4 basis points below over 3-years maximums. This topic was also caught up by the currency market. The dollar bounced to the currencies basket (based on its part in commerce exchange) in over 5-years peaks. It overlapped with the increase of USD/JPY on new, 7-years maximums (119.50) and the drop of EUR/USD towards 2-years pits.

Today's changes are just a consequence of yesterday's events and in case of EUR/USD the movement has been enforced by the reading of PMI from the services sector. It was weaker than in the initial readings (one should pay attention on almost one point review of French index – from 48.8 to 47.9).

Given the recent three sessions, the rouble lost barely 15% of its value. In such conditions and by such strong fluctuations, even the “veterans” of the Moscow market won't risk publishing any concrete prognoses. However, a joke that circles around the traders, might be helpful in further evaluation of the Russian currency. Year 2015 may be “sponsored” by number 63. On president Putin's sixty-third birthday, the dollar will cost 63 roubles (almost 20% more), and the oil will drop down to 63 USD per a barrel (by over 10%).

Coming down to Earth, the news about the central bank of Russia (CBR) intervention on the market on Monday, were confirmed this morning. The scale of sold currencies, was however very small – 700 million USD (the amount estimated by the dealers). That also confirms the approach, that CBR is far from stopping rouble's depreciation, and will intervene only in case of extreme fluctuations. It overlaps with the government's strategy, which most of all cares that the budget income in local currency, would be constant.

We have a several dozen hours of important publications ahead of us. Today we will find out how many new jobs were created in the USA according to ADP agency (survey: 222k) and what were the sentiments of logistic managers outside of the industry (ISM – survey: 56.5 points). Only clear variance from the consensus (at least 30k on ADP and 1.5 point on ISM) may enforce (better publication) or weaken (worse reading) USD in a noticable way. Yesterday's behaviour of currencies confirmed also the mid-term trends, where the aim of EUR/USD is the level of 1.20, and of USD/JPY to be clearly above 120.

Levels maintained

As many as 35 out of 39 economists surveyed by Bloomberg, expects that the interest rates will remain on their current level. And although that recent two surprising decisions of MPC motivate us to look at the matter on contrary way, this time the probability of changes in credit's cost is really very small. Data from the country appeared to be much better than the estimations, and the views in the MPC move rather towards neutral than mild attitude (vote results, statements in the media).

Thus today the market participants will rather focus on the press conference about the decision that was published in the early afternoon. The zloty may slightly gain on its value if the overtone of the statement will be less dovish that recently (e.g. the Council will resign from the statement that does not exclude any further decreases). On the other hand, maintenance of mild attitude, along with relatively doveish statements of Belka (e.g. exposing the uncertainty) is a chance for giving away a part of the zloty's recent strengthening. However, the rebound from the area of 4.15-4.17 on EUR/PLN is unlikely irrespectively of situation's development.

Shortly after the annoucement of the MPC decision, the market participants will be preparing for Thursday's summit of EBC. In case of more dovish signals from Frankfurt (strong suggestions about QE, plans for purchasing private debt, underlining a longer term for inflation to reach its aim), we can even drop to the areas of 4.10-4.12 on EUR/PLN and clearly below 3.45 on CHF/PLN.

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

Range EUR/USD 1.2450-1.2550 1.2350-1.2450 1.2550-1.2650
Range EUR/PLN 4.1600-4.2000 4.1600-4.2000 4.1600-4.2000
Range USD/PLN 3.3200-3.3600 3.3400-3.3800 3.3000-3.3400
Range CHF/PLN 3.4600-3.5000 3.4600-3.5000 3.4600-3.5000

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

Range GBP/USD 1.5650-1.5750 1.5550-1.5650 1.5750-1.6850
Range GBP/PLN 5.2500-5.2900 5.2300-5.2700 5.2700-5.3100

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