Daily analysis 27.11.2013:
The EUR/USD approaches 1.3600 despite mixed data from the US economy. “Crazy” changes at the Minneapolis Fed. The Polish zloty is still stable but it failed to use the opportunity to strengthen after EUR/USD rise and US treasury yields slide.
Macro data (CET- Central European Time). Survey is supplied by Bloomberg unless otherwise noted.
- Besides the market consensus we are also publishing the consensus range. It gives more info how economists predict the incoming data and what kind of impact can be generated from surprising reports.
- 14.30 CET: Durable goods orders from the US (consensus: minus 2% m/m; consensus range minus 9.9 m/m to plus 0.5% m/m; excluding transportation: consensus +0.4% m/m, consensus range: minus 1.1% to +2.0%).
- 14.30 CET: US jobless claims (consensus: 330k – range between 325k and 340k).
- 15.45 CET: Chicago PMI from the US (consensus: 60.5 points, range between 56 and 65.5).
- 15.55 CET: Final reading University of Michigan index (survey 73.3, range between 72 and 76 points).
Selective interpretation. Minneapolis Fed
Yesterday we had a clear confirmation how investors can selectively choose the data to push further the current trend. The report from US hosing market was really solid. It was not only above the market consensus, but also beyond the survey range (building permits 1034k vs 930k and 985k respectively). The reaction for dollar bullish report was limited, and later the US currency weakened after weak consumer confidence reading. Shortly after the EUR/USD moved higher and remained close to 1.3600 mark.
The history regarding regarding research department at Minneapolis Fed has been developing (more details in the Monday analysis). As “The Wall Street Journal” reports the economy Nobel price winner, Edward Pescot said that Kocherlakota decision to fire top researches was “crazy”. On the other hand the “Financial Times” goes more into the details of the issue. Robin Harding from the FT claims that behind the fundamental difference stands behind the conflict. He writes that “because the Minneapolis Fed is a leading centre for “freshwater” economics, so called because it grew up in universities around the US Great Lakes rather than the “saltwarter” universities on the coast. Freshwater economists tend to be more sceptical about the effectiveness of active fiscal and monetary policy”. Naryana Kocherlakota runs the Minneapolis Fed where the “freshwater” dominates. However, the local Fed's chief has changed his view on the monetary policy in the 2nd half of 2012. Now he is a strong supporter of ultra loose monetary policy and aggressive quantitative easing. It is worth to follow the case, and wait for any remarks from top Fed's officials – Yellen or Bernanke and whether the discussion on internal cohesion and independence of research departments will have any broader consequences.
We have another set of data today. Taking into the account the market sentiment investors will interpret them against the dollar. It can result that we will stay above 1.3600 for longer. It is quite an achievement for the EUR/USD especially that we are pretty close to two-year highs (which were set before euro-area inflation data, ECB rate cut, solid GDP reading and surprisingly strong payrolls – all reports were bearish for the EUR/USD but their influence was limited).
Increased odds for the EUR/PLN breakout
The Polish currency wasn't able to take the advantage of recent EUR/USD gains, record-high US stock market and sliding US treasury yields. In result there is an increasing risk that in case of slight sentiment deterioration the zloty can weaken by around 1% to the euro. On the other hand there no real reasons (either market or fundamental) that the Polish currency can depreciate significantly. In recent month we got used to low volatility on the PLN so even a small change can draw some attention.
Today we still remain close to 4.20, but it is possible that we can weaken toward the end of the to around 4.21-4.200 to the euro. The same situation can be observed at other Polish pairs where the move around 0.5% can be expected.
Expected levels of PLN according to the EUR/USD rate:
Expected GBP/PLN levels according to the GBP/PLN rate:
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