Daily analysis 06.05.2014

, author:

Marcin Lipka

Maintenance of EUR/USD near many years old peaks increases a probability of its taking off. Why may ECB not decide for a movement during the Thursday's summit? A good session on the American stock market helped zloty.

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

  • Between 9.00 CET and 10.00 CET – Final readings of service PMI from Euro Zone (rather without any greater influence on the main pair).

Data and ECB

Monday's session on currency market didn't bring much freshness. It was a result of few factors. First of all, London was closed due to Bank Holiday, what usually means volatility on FX. Second element keeping the Forex players from more determined decisions were consistent with expectations data from American economy. ISM index, describing the condition of services on the other side of the ocean increased to the level of 55.2 points (component of employment had descended a little but the new orders and prices had clearly increased). The third matter stopping more daring decisions was the uncertainty before Thursday's European Central Bank summit.

Mario Draghi and his co-workers will stand before a serious dilemma: should they, and if so -how, ease the monetary policy? The argument for the changes is of course low inflation, which is certainly below recent projections (reading for March was barely 0.5% r/r, and for April 0.7% r/r). Still, ECB will have to calculate how big a part of decreased prices is caused by temporary elements (energy costs, strengthening Euro or restoration of peripheries competitiveness through decreasing the wages) and which of them can indicate that the economic growth can be disturbed by general tendencies of getting nearer to deflation environment. However, considering the whole statements of ECB members and their earlier decisions, the Bank will more likely refrain from undertaking some steps during the closest summit. Most probably Draghi will want to wait for June's update of macroeconomic forecasts and when they will clearly differ from March estimations, the decision about introducing further easing will be undertaken.

If the scenario above fulfils, we have a chance for a clearer taking off on upcoming Thursday (even in the limits of 1.40). On the other hand, in case of aggressive reaction of ECB (purchase of treasury bonds and private debt), EUR/USD can fall even below 1.37. Today the trade should be relatively calm and none of the sides is likely to gain enough advantage.

Help from the other side of the ocean

Yesterday's rates from the zloty market were quite calm but we have spent most of the time clearly above the limit of 4.20 on EUR/PLN. Only the optimistic rate of stock market session from the other side of the ocean (fast exiting from quite deep descends and closure of S&P 500 less than 1% below the all times records) caused a slight increase of appetite for risk and descend of Euro-zloty to 4.20.

Tuesday's trade should not bring any bigger changes. Polish currency can still be under pressure of outside factors (Ukraine) and will rather remain stable or weaken then it should be clearly enforced. MPC summit which begins today, also should not have any bigger influence on PLN evaluation. Money rates will probably remain on their current positions until the end of the year, and any other suggestions or decisions (e.g. about forward guidance decreasing), will be presented in July along with the new NBP macro projection.

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

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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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