Daily analysis 20.06.2016:
A boom of optimism on the British currency. Isn't the market overestimating the favorable situation development? The zloty became stronger due to a wave of a better global sentiment. However, these moves are definitely less spectacular than those on the pound.
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 impact the analyzed currency pairs.
Broad optimism in the markets
After the weekend, the sentiment on the majority of risky assets improved significantly. Terminal contracts for the American indexes increased by more than one percent. The European stock markets are quoting more than two percent of increases. Additionally, currencies of many emerging markets countries, as well as raw materials countries, are gaining against the dollar due to a lower risk of Brexit.
The British currency is quite distinctive in this positive surrounding. Last Thursday afternoon the GBP/USD pair was testing the area of 1.40. Today, it went above 1.4650. Approximately 5% in less than two sessions is really a lot. Additionally, if the pound finishes the day at current levels, this will be its strongest appreciation since 2008.
Positive condition of the pound, as well as of other instrument, is a result of new surveys. We often took note that the market reacts quite nervously on either an increase, or decrease in chances for Brexit. In this case, it seems quite likely that the optimism is precocious, as well as exagerrated.
Surveys are not that unambiguous
Tragic events from Birstall have withheld the referendum campaign. Moreover, they have caused a postponement in publishing the results of surveys. The BMG/Herald Scotland survey has not been published until Friday night. It was conducted via phone, as well as online, and ended on June 15th.
Phone surveys showed a 6% advantage for the EU supporters (53% vs 47%), after excluding respondents who are not yet sure, whether they will vote. On the other hand, online surveys (excluding those who are not yet sure as well) showed a 55% vs 45% result, in favor of the Brexit supporters. However, online survey that included those who are not yet sure, showed a 10% advantage for the Brexit supporters as well (51% vs 41%). The phone survey result gave only a 3% advantage for the EU supporters (46% vs 43%).
The Opinium/Observer online survey was published on Saturday evening. Twenty percent of surveys were made after the murder of deputy Cox. The final result was a tie (44% vs 44%). There was a decrease in support for Brexit in comparison to the same survey from the past week (44% for Brexit; 42% for EU). However, it was not large.
It is very likely that the Survation/Mail on Sunday survey was quite important for investors. It has been conducted in its entirety after the death of deputy Cox. Moreover, it was possible to compare it to the Survation/IGcom survey that was published on June 16th. It showed the advantage for the EU supporters (45% (+3%) vs 42 (-3%)) at the level of 3%. This is a visible difference. However, it is still significantly lower than the one observed in the phone surveys in May.
In the end, it is worth reminding two YouGov surveys for Good Morning Britain (44% for Brexit vs 42% for EU) and The Sunday Times (44% for EU vs 43% for Brexit). They have been finished day after day. However, 2/3 of surveys from the latter survey were conducted after the tragic events in Birstall.
In conclusion, we actually can see a certain move of respondents towards the status quo. This is also confirmed by the median of the recent surveys that was published by Whatukthinks.org. It currently shows a tie, whereas on June 14th the results were 53% for Brexit against 47% for EU.
On the other hand, the change is not large enough to justify such strong moves on the pound. Especially considering that even if the UK remains within the EU, the new surveys do not have to be unambiguous. It will be easy for a negative surprise with this level of optimism. It is also worth remembering of a significant volatility of surveys that has been observed during the entire campaign, as well as the fact that the bookie companies have quite clearly revised their estimations during the past weeks.
Optimism on zloty is becoming more cautious
The Polish currency takes advantage from the better global sentiment, even though the moves are not that strong as on the pound. The EUR/PLN remains within the area of 4.40, and is only 0.06 PLN below its peaks from the past week. However, the dollar is clearly lower. The American currency is below 3.90, and only on Thursday it was testing 4.00.
If the United Kingdom remains within the European Union, we can expect the euro to go below 4.35, and the franc to the area of 4.00. On the other hand, in the case of Brexit and the lack of intervention from the leading central banks, we cannot exclude the growth of the EUR/PLN to the level of 4.60, and the franc may go to the range of 4.30-4.40.
It is also worth remembering that there are only three days until the referendum. At least few surveys will be published until Thursday. If they deny the positive trend from the weekend, the reaction on the zloty may be sudden. Moreover, it is possible that we will see a move to the areas observed last Thursday.
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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 Cinkciarz.pl Sp. z o.o is prohibited.
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