Daily analysis 18.09.2015:
The Federal Reserve left the interest rates on an unchanged level, and worries about the global situation. The Greeks choose again the parliament. The dollar is cheaper, but the aversion towards risk and weaker national data did not allow a depreciation in the EUR/PLN.
Most important macro data (CET – Central European Time). Estimations of macro data are based on Bloomberg information, unless marked otherwise.
- No macro data that could significantly influence the analysed currency pairs.
- Sunday's elections in Greece.
The Fed is becoming more global
The base case scenario that we have predicted, was fulfilled by a majority. The Fed left the interest rates on an unchanged level, projections of the base case inflation for the coming year were decreased, just as the unemployment estimations in every division of the prognoses. Also, the path of the future interest rates was reduced, although not as deeply as expected.
The fact that the Fed still expects four hikes in 2016, can be very surprising. However, it is possible that this situation will be reviewed in December, irrespective of the decision regarding the cost of money itself. If two members change their opinions, we can expect an increase by only 75 base case points.
However, a clear focusing of the Federal Reserve on the global matter, was the biggest surprise. It was emphasized not only during Janet Yellen's testimony, or the question & answer session. Worries about the global situation were also mentioned in the Fed announcement, which happens very rarely.
A strong anxiety of the condition of the emerging markets was the main element of quite chaotic behaviour of raw materials and shares. Participants of these markets found it difficult to say, whether the American indexes or oil will increase due to the milder monetary policy, or decrease due to anxieties of the global economic increase.
There were no such doubts on the debt instruments market. Milder monetary policy combined with the anxieties of the economic increase, is a perfect set of arguments for the profitability of two-year-old treasury bonds to overvalue. This overvalue appeared to be the highest since 2010, and it was 14 base case points.
The commotion on the market of emerging markets' currencies was slightly bigger. Some of these currencies, for example, the Hungarian forint, gained value. On the other hand, some of them finished the session with depreciation, after an initial appreciation (the Brazilian real). In this case, just like in the case of the capital and raw materials markets, there was a clash of a concept of mild monetary policy, with a danger of economic slowdown.
Unchanged interest rates in the USA supported an increase in the EUR/USD. A general wear off of the American dollar helped the evaluation of the main currency pair. It is also worth noticing, that some of the increases on the level of 150 pbs, come from an enforcement of the euro.
A weaker perspective of the emerging markets is one argument to reduce the carry trade positions, which are financed in the euro. As a result, an increase in the EUR/USD is fuelled not only by the weak dollar, but also the enforcing euro. This may cause the appreciation movement of this pair to be longer. This tendency can probably be reversed only by a strong signal from the EBC, about an extension or an increase in the quantitative easing.
The Greek elections
Another election will be conducted in Greece this weekend. Considering the surveys, it is difficult to point out the winner. Both the Syriza and the New Democracy, have a chance to receive 28% of the votes. However, it is not enough to reign independently, even though the winner gets 50 additional places in a 300 place parliament chamber.
The New Democracy is willing to create a coalition with Alexis Tsipras' party, if they win the elections. On the other hand, the former prime minister is not eager to co-operate with the biggest opposition party if he wins. He most definitely prefers to co-reign with smaller parties, including Pasok and Potami.
In general, there is a small chance for the agreement with the creditors to be endangered, irrespective of the victory of Syriza or the New Democracy. On the other hand, limited support for the two biggest parties, and a relatively strong support for extreme left or right parties would be the biggest problem. Difficulties in forming a government could make the acceptance of the reform and savings impossible. In the extreme scenario it could even cause the return of the danger of Grexit.
Few words about the foreign market
A combination of mild commentary from the Fed, and its emphasizing of dangers for the global economic increase, creates good conditions for keeping a decrease pressure on the dollar, and a reverse of carry trade on the euro. Thus, it is possible that until there are no specific suggestions from the EBC regarding the extension of the QE, the EUR/USD will remain on relatively high levels, and it can also go above the level of 1.15.
The zloty after yesterday's decision of the Fed
The mild message from the Federal Reserve should not only cause a decrease in the USD/PLN, but also a slight depreciation in the EUR/PLN. However, the scenario of a cheaper euro to the zloty was not fulfilled, due to clearly weaker data from the national currency. The industrial production was one percent lower than the expectations, and retail sales in August were negative in y/y relation. The EUR/HUF pair, which is not burdened with the national data, decreased yesterday by 0.5% after the Fed's decision.
The EUR/PLN stopped decreasing, also because of the generally weak condition of the capital market on the other side of the ocean. Weaker sentiments on the market of shares are not advantageous for the wallet investments on the emerging markets. Thus, the EUR/PLN is most likely to have difficulties in going below 4.20. On the other hand, the USD/PLN still has a chance to depreciate, and it is possible that the dollar may go below 3.65.
Anticipated levels of PLN according to the EUR/USD rate:
Anticipated GBP/PLN levels according to the GBP/USD rate:
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 Cinkciarz.pl Sp. z o.o is prohibited.
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