Daily analysis 24.11.2014

, автор:

Marcin Lipka

EUR/USD tries to het back above 1.2400 after the better that expected Ifo reading. The Swiss Central Bank most probably conducted an intervention last week on the currency market. The best ropuble week since 2012. The zloty tries to strengthen below 4.20 per the euro. The politics has no influence on the domestic currency (for now).

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

  • No macro data which may significantly affect the analyzed pairs.

Ifo. The franc. The rouble

The effects of the central banks' activities from last week are still visible on the market. The comments of the EBC's chairman, Mario Draghi, along with China's interest rates cut caused the downward pressure on the euro and raising pricing (lower profitability) of the treasury debt instruments (this morning the profitability of the Spanish 10-year bonds fell by 2% for the first time ever). These signals should not be taken too optimistically, though. Low interest on the treasury bonds are more of a preview of the prolonged time of low inflation or possible intervention on the market (e.g. by the ECB's QE) and not better indicators of the Madrid's solvency (which level stayed the same).

The publication of the entrepreneurs' sentiment from Germany was rather an optimistic surprise. One of the most valued indicator - Ifo - has unexpectedly went up for the first time in 6 months (now 104.7, before: 103.2, expected: 103). The Institute's statement which presents the survey reads that "the producers are currently more and more happy with the situation" and look less pessimistically to the future

However, it is worth noting that it is only the first raise of Ifo in half a year and indicators usually move in rather strong trends. In order to draw more conclusions from the recent hike - as it was emphasized by the Institute's president, Hans-Werner Sinn in his comment for Bloomberg - there will have to be at least two more positive readings which could shift the recent tendency to a positive one. Even though the data from Germany are good for the euro, they are unlikely to affect the EBC decision. This is why the recent move of the EUR/USD back to the levels of 1.2400 is only a pit stop during further falls.

In the morning the Swiss Central Bank (SNB) published the data which could mean that last week the monetary authorities in Zurich intervened on the currency market. The 'slight deposit' component went up by 5 billion francs in the last 5 working days and reached 320 billion francs. Despite the fact that 'sight deposit' can be influenced by other factors (e.g. larger reserves of the commercial banks 'packed' in the account with the central bank or an effect of the exchange of the foreign currency for francs due to the surplus on the current account), having taken the latest history into account this component was the first signal of the franc sell-out on the market (purchase of foreign exchange) by the SNB. This might mean that - as indicated last week in the analyses - the EUR/CHF is more likely to move around the levels of 1.2020-1.2030 rather than test the 'immunity' of the central bank, going below 1.2010.

The rouble subject hasn't been raised for some time in the analyses. It is worth noting, however, that the past week was the most favorable for the Russian currency since 2012. Both the USD/RUB and EUR/RUB fell by 3%. Additionally, since the morning the further appreciation of the Russian currency proceeds (now more than 2%).The first reason for the rouble's better shape is profit taking by the speculative capital and probable reverse positions by some players. The second reason are increases in the oil market (monetary stimulation, the speculation before the OPEC summit).

It is, however, ill-advised to assume, that pairs x/RUB will only fall. The situation is still very dynamic and it's being recognized not only by the market participants, but also the authorities in Moscow, which do not exclude further, slow depreciation in the quarters to come. In the short term the rouble might gain value (especially given that the raw materials go higher), however, going back to the level of 42 on USD/RUB (that's when the aggressive sell-out begun) is still unlikely.

Summarizing, EUR/USD will probably stick around the level of 1.2400 for the next couple of hours. Good Ifo reading will most likely be only a pause in the deeper depreciation of this currency pair. If there is no signals for continuing the downward movement from the euro zone or USA, then maybe the events on USD/JPY (the pair seems to be eager for some further gains) will cause bigger appreciation of the American currency, which should bring the EUR/USD back to the levels of 1.2350.

Monetary policy is the key. Election with no influence (for now)

The main element to shape the pricing of the zloty are still the suggestions of the EBC which seem to announce the deeper monetary stimulation. This fact has brought EUR/PLN below 4.20 and the franc is bought for 3.49 on an international market. The fall tendency of the both currency pairs should be maintained, especially if the tomorrow's retail sales data prove be better that the economists' expectations (+2.2% y/y).

Speaking of the domestic currency one cannot omit the situation in the politics after the local elections. The majority of the news from both opposition and coalition goes straight to the market (meaning also the foreign market). Despite the fact that the discussion between the parties seems to be tensed, the investors aren't too bothered with these verbal skirmishes. However, if one was to seek for analogies in the recent events, the situation in Turkey seems to be worth recalling (the reasons for it were of course completely different). Many months were to pass until the social issues affected the valuation of local assets. Hence if the current situation ends with (peaceful) demonstration come December 13, the influence on the zloty should not be visible. For the zloty to be sold-off and change the rather positive image of Poland abroad the situation needs to worsen significantly (weeks-long protests, inadequate reaction of the authorities).

Summarizing, the most important issue for the market is still the monetary policy in the euro zone. The data from the local economy come second (retail sales data tomorrow, PMI in a week). If both these readings are better than expected (especially PMI), then chances for the interest rates cut by the Monetary Policy Council will go down (despite being small to begin with) and the future Monday will show trade on the levels of 4.18 on EUR/PLN and 3.47 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 4.2000-4.2400 4.2000-4.2400 4.2000-4.2400
Range USD/PLN 3.3600-3.4000 3.3800-3.4200 3.3400-3.3800
Range CHF/PLN 3.4800-3.5200 3.4800-3.5200 3.4800-3.5200

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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