Afternoon analysis 15.02.2016

, author:

Marcin Lipka

Draghi's hearing before the EU Parliament pushes the euro slightly lower. How is the SNB going to respond to the ECB decision? The zloty remains fairly stable against the euro and is lower against the dollar. The S&P on Polish rating.

The euro is slightly lower during Draghi's statement

From the moment Draghi's hearing has begun, the EUR/USD lost around 30-40 pips in comparison to the levels observed before the EU parliament hearing. Due to the fact that the Q&A session hasn't ended yet, it is possible that the sell off may go deeper. No new messages are expected later in the afternoon due to a market closure in the US.

The most important part in Draghi's hearing was noting two issues which can change monetary policy measures. Firstly, the ECB is expected to evaluate, “the strength of the pass-through of low imported inflation to domestic wage and price formation and to inflation expectations. This will depend on the size and the persistence of the fall in oil and commodity prices and the incidence of second-round effects on domestic wages and prices. Secondly, in the light of the recent financial turmoil, we will analyse the state of transmission of our monetary impulses by the financial system, and particularly by banks. If either of these two factors entail downward risks to price stability, we will not hesitate to act”.

What is worth noting is the issue regarding turmoil on the market, which may also push the ECB to act. As a result, we may evaluate that the ECB decision could be even more aggressive than previously expected. Finally, it can push both the rates lower the QE higher.

Expectations before the SNB decisions

Last week, Bloomberg asked 31 economists from leading investment banks on the anticipated SNB decision, if the ECB decides to modify the monetary policy. If there is a cut in the euro area, six respondents also see a cut by the SNB, nine claim that there would be FX interventions, and eight economists claim that both measures are expected to be implemented.

Additionally, the media expectations on the SNB rate is negative 1.25. That means that most of them foresee a 50 bps cut. If such a strong action is observed, it should also push the Swiss franc lower. Moreover, it would also reduce the interest rate for the CHF loans.

Despite a slide on the EUR/USD, there is no significant selling pressure on the EUR/PLN. It is possible that the zloty is kept lower due to other comments from Standard & Poor's officials. According to Bloomberg, S&P claims , “if we see further deterioration of independence of key institutions in Poland, it may push S&P to further lower Poland’s rating”.

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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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