Daily analysis 24.02.2014

, author:

Marcin Lipka

The EUR/USD tries to exploit any opportunity to gain additional value. A prompt rescue fund for Ukraine should calm sentiment in the region. Key ECB meeting in March. Ifo reading from Germany. The zloty strengthened on Friday after positive information from Kiev, but at the beginning of the Monday session the gain was trimmed.

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

  • 10.00 CET: Already published German Ifo reading (survey at 110.5 points; actual value at 111.3).
  • 10.00 CET: Retail sales form Poland (Polish Press Agency survey +4.3% y/y ; actual value +4.8%).

The data. Ukraine. ECB

At the beginning it is worth to mention the Friday's economic data from the US. Existing home sales dropped in January to 4.62 million (annualized, seasonally adjusted data), whereas the expectations were around 4.65 million. The number is not that far from estimates, but the slide seems to be not only caused by the weather related issues. Bloomberg points out that the amount of transactions dropped not only in a snowy regions but also in California. Additionally, the reading was the lowest since mid-2012 and the sales decreased due to weaker supply of homes and higher mortgage rates. The report is another (of course not ground breaking) argument for the dollar bears who bet that the Federal Reserve pause the tapering for one or two meetings and therefor push the dollar lower.

In the recent hours we had many developments regarding Ukraine. After announcing the agreement on Friday afternoon, we did observe not only an appreciation of EM currencies, but also a positive bounce on the EUR/USD. During the weekend, however, it turned out that on the Polish east border there are much broader political changes than anyone earlier expected. Ukrainian president Viktor Yanukovych was ousted from power and Yulia Tymoshenko was released from prison. It brings much more chances that the EU and the IMF will help Kiev to overcome the economic issues. As George Osborne said in Sydney (according to “The Wall Street Journal”), "we are ready to help as soon as somebody picks up the phone (in Kiev)". Moreover, the IMF will probably reduce its requirements regarding financial assistance. Earlier the Fund demanded from Ukraine to allow the currency to trade freely (it was overvalued) and stop helping to finance the gas prices for retail customers. It is still possible that Moscow may co-finance the bailout. According to the “WSJ”, a U.S. Treasury official said that Mr. Siluanvo agreed in a meeting with Secretary Jacob Lew “on the importance of promoting economic and financial stability in Ukraine and the need to implement reforms that could be supported by an IMF program”. There are rumors that the loans to Kiev may significantly exceed 15 billion USD promised earlier by Russia and can even top 20 billion euro.

During the G20 meeting in Sydney Mario Draghi, in line with market expectations, confirmed that the incoming ECB meeting will be key for the future monetary policy. The Euro Zone central bank chairman said that we will have full data to make a move or not (regarding the interest rates). Until the March 6 meeting the ECB will have February inflation number (due on Friday) and macroeconomic projection for 2016. Besides economic reports form the US, they are key issues regarding the future condition of the EUR/USD.

Summarizing the EUR/USD is still trending upside. It was clearly seen also at 10.00 CET when the Ifo number hit the wires and the most heavily traded currency pair rose another 20 pips. There is also still constant approach toward data published in the US. Better-than-estimated data reported across the ocean should support the greenback and on the other hand when figures from the US fall short of expectations it should keep the dollar under pressure.

Around 4.16 per the Euro

The Friday's agreement reached in Ukraine caused that some investors unwinded positions against the zloty what pushed the Polish currency under the 4.15 level per the euro. Today, however, we see a comeback to the short-term balance which can be set around 4.16 on the EUR/PLN pair. On the other hand, the retail sales reported in Poland (in line with expectations) was neutral for the local currency. If there is no new dire news from Kiev, then we should expect that the PLN should mostly focus on the data from the US or the Euro Zone.

Summarizing, in the incoming hours we should have a calm trading. The base case scenario for the EUR/PLN 4.15 plus/minus 0.01 PLN.

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

Range EUR/USD 1.3550-1.3650 1.3650-1.3750 1.3450-1.3550
Range EUR/PLN 4.1400-4.1800 4.1400-4.1800 4.1400-4.1800
Range USD/PLN 3.0300-3.0700 3.0100-3.0500 3.0600-3.1000
Range CHF/PLN 3.3800-3.4200 3.3800-3.4200 3.3800-3.4200

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

Range GBP/USD 1.6350-1.6450 1.6450-1.6550 1.6250-1.6350
Range GBP/PLN 5.0300-5.0700 5.0500-5.0900 5.0100-5.0500

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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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