Daily analysis 12.11.2014:
Penalties for banks on fixing FX rate. Another record high levels on USD/JPY. SNB comments Swiss franc floor. Ukrainian currency in crisis again. The zloty is fairly stable to the euro and the franc after the “Inflation Report”.
Macro data (CET- Central European Time). Survey is supplied by Bloomberg unless otherwise noted.
- No major economic data which may significantly affect the analyzed pairs.
Penalties. Weakness. Opinions. Hryvnia
Recent two days were pretty calm on the EUR/USD. The most heavily traded currency pair was mainly under the influence of yen turmoil and shifts on US Treasuries (especially on Monday's afternoon when we saw a significant upside move on US10-years paper which almost leveled off the losses during the Payroll day). Currently the base case scenario for the EUR/USD is relatively calm trading with slim chance to test the recent lows till the euro area GDP hits the wires on Friday.
Regulators from the US, Switzerland, and the UK fined several investment banks (UBS, HSBC, Citi or J.P. Morgan) on FX manipulation charges. We covered the topic pretty broadly around 1.5 years ago. What is quite interesting, the whole operation was hitting mutual funds or pension funds in the moment when the institutions wanted to convert their foreign operation into local currencies.
There is still a lot of volatility on Japanese currency. The yen slided again to 7-year lows and the dollar was briefly worth more than 116 JPY. The catalyst to the further depreciation came from rumors that the government may halt its sales tax increase scheduled for October of 2015. However, it was rather a good reason to push the trend forward rather then a major market issue. It does not change the overall view that the dollar may 120 JPY as early as this year.
The closer we are getting to the “gold referendum” in Switzerland, the more analysis are published regarding the topic. Our stance, however, hasn't changed much. The “yes” voters will fail. Additionally, even if they decide to increase the gold holding the SNB will be able to keep the EUR/CHF floor at 1.20 for the next several years.
It was confirmed today by the SNB chief comments. Thomas Jordan in an interview for “20 minutes” said that EUR/CHF floor will be kept in the foreseeable future. However, he also added that the “gold initiative” if accepted by the public will make the monetary work harder (also more difficult to keep the floor – author's note).
Low probability for changes in the monetary policy are predicted by UBS. The Swiss bank claims that supporters for the gold changes have slim chance to succeed what may be shown in the next opinion polls which are probably due next week. Additionally, UBS notes that scrapping the floor on EUR/CHF is not predicted even if the “yes” camp wins. Similar opinions are shared also by Morgan Stanley, Commerzbank and Citigroup.
More bad news is coming from Ukraine. The hryvnia which was supported by the central bank in the recent weeks (probably due to the election) dropped further and the dollar is approaching 16 UAH. Twenty percent slump since the beginning of November is pushing the total slide in the last 12 months to 50%.
How dramatic the data looks in the micro scale should be well described by one number. According to the national statistical office the average monthly salary in January 2014 was 3167 hryvnia and currently it is 3400 hryvnia. However, translating the wage into US dollars the real paycheck dropped almost by half (from 400 USD to 220 USD).
In the short term there are no clear signs for a significant rebound above 1.2500 or slide under 1.2400. As a result the base case scenario is fairly calm trading until the euro zone GDP data hits the wires on Friday. Regarding the geopolitical situation it is still tense but the odds for new sanctions are pretty slim (except the personal fro newly elected Donbas leaders).
The zloty slightly weakened after the publication of full “Inflation Report”. According to the central bank the GDP will rise in 2015 by 3% (in July the estimate was +3.6%) and the inflation should be around 1.1% (previously 1.4%). The main risk concerning Polish growth, which is not really surprising are possible stagnation in the euro zone and conflict between Ukraine and Russia. Regarding the CPI it is pushed to the downside by global trends in oil and food.
Taking into the account that the current inflation report already includes the most recent rate cut the fact that the CPI is not reaching two percent until Q4 of 2016 may be an argument for the market to push the MPC for at least one cut in 2015. For now, however, the decrease is not really probable due to Chojna-Duch opposition and the benchmark will remain unchanged for at least two meeting (regardless of the macro data).
Summarizing, the Inflation Report confirms the pressure to cut the interest rates in Poland but taking into the account the “human effect” such a decision will not be made for at least two months. In the short term it should be supportive for the zloty and in moments of more turmoil the currency will be relatively stronger while during “risk on” scenario it should strengthen a bit more than its counterparts. Today we should observe a calm trading with EUR/PLN and CHF/PLN around 4.22 and 3.51 respectively. The dollar should remain below 3.40 while GBP/PLN after dovish UK inflation report will not be able to exceed 5.40 level in the following days.
Expected levels of PLN according to the EUR/USD rate:
Expected GBP/PLN levels according to the GBP/PLN rate:
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