Daily analysis 19.02.2015

, author:

Marcin Lipka

More dovish than expected minutes from the Fed pushed the US dollar lower. Downward pressure on the Swiss franc after the SNB presentation in Brussels. The zloty reacted fairly calm to the macro data. CHF/PLN below 3.90.

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

  • 14.30 CET: US jobless claims (survey: 290 k).
  • 16.00 CET: Philadelphia Fed index (survey: 9.0 points).

Fed more dovish

There is a few doubts about the overall “minutes” message being more dovish than expected. Close to the consensus were the first paragraphs where the Federal Reserve confirmed its suggestions from the January statement that the GDP in 3rd quarter was solid. The Fed was also bullish regarding jobs market even though the officials didn't have the latest payroll data published at the beginning of February.

The FOMC had some doubts regarding the situation oversees and inflation outlook. Participants noted that issues concerning Greece or Ukraine have negative impact on the global economy, but lower energy prices and accommodative monetary policy abroad should level off the geopolitical issues. In the sum the risks are balanced.

Regarding inflation the money market instruments are showing further pressure on prices but survey based expectations tend to be well anchored. The FOMC predicts that inflation should return toward 2% level when the lower energy prices effects disappear.

The most surprising discussion was revealed regarding the moment of the interest rate hike. The FOMC brought up again the idea that keeping interest rate at zero level for longer should be less harmful for the economy that rising it prematurely.

Participants seemed also to be fairly dovish regarding scrapping the “patience” phrase which, according to the officials, limits the FOMC moves. The Fed, when it decides to remove “patience”, would like to focus market attention more to the data rather than certain dates. Members also seem to be “frightened” by the market reaction when it turns out that the rates are scheduled to be risen fairly soon.

Swiss franc continues to depreciate

The EUR/CHF pair continues its appreciation move. On Thursday morning it rose to 1.0750. The main reason behind franc depreciation is probably still the SNB chief presentation in Brussels

Despite the fact that the Thomas Jordan statement mainly focused on high competitiveness of Swiss economy, the subject of too strong currency was highly visible and might have “frightened” the portfolio investors who still count on the CHF appreciation.

On the other hand, one should not expect the franc slide continues at the current pace for longer. Topping 1.10 level per the euro is not the base case scenario currently. It also translates also to slim chances that the CHF/PLN drops below 3.80.

Foreign market in a few sentences

The EUR/USD appreciation was fairly warranted. Surprisingly dovish minutes may push the interest rate hike scenario further into the future. Regarding the monetary tightening the key event will be scheduled on Tuesday and Wednesday Janet Yellen testimony before Congress. Currently the base case scenario for the EUR/USD is trading around 1.1400.

Stronger zloty. Franc below 3.90

The trading day begins with some zloty appreciation. One of the reason supporting the Polish currency is some resolution regarding key points in Ukraine. Despite the fact that Kiev forces were force to withdraw the sentiment should improve after heavy frightening pauses.

The zloty also was pretty calm after modest data from Poland despite the fact that weak industrial production and retail sales are rather brining the MPC to deeper interest rate cut.

The EUR/PLN slide towards 4.17 and appreciation of EUR/CHF above 1.07 caused that CHF/PLN dropped below 3.90. The base case scenario for franc is trading close to the current levels with some probability to continue the slide but at slower pace than observed in the most recent hours. Currently, however, there is a small chance that the CHF/PLN can drop below 3.80.

For the zloty the main risk in the few days' perspective is situation in Greece. Athens didn't present any real program to exit the deadlock. If there is no progress regarding this case, the zloty's appreciation may be halted and the odds for EUR/PLN rebound with the target around 4.20 can increase markedly. In the long run, however, we still assume that Greece strikes a deal with its creditors and in consequence it should push higher the PLN toward 4.10 per the euro at the end of 1st quarter.

Expected levels of PLN according to the EUR/USD rate:

Range EUR/USD 1.1250-1.1350 1.1150-1.1250 1.1350-1.1450
Range EUR/PLN 4.1600-4.2000 4.1600-4.2000 4.1600-4.2000
Range USD/PLN 3.6600-3.7000 3.6900-3.7300 3.6500-3.6900
Range CHF/PLN 3.9000-3.9400 3.9000-3.9400 3.9000-3.9400

Expected GBP/PLN levels according to the GBP/PLN rate:

Range GBP/USD 1.5350-1.5450 1.5250-1.5350 1.5450-1.5550
Range GBP/PLN 5.6500-5.6900 5.6300-5.6700 5.6700-5.7100

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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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