Afternoon analysis 26.11.2014

The ECB will asses whether to launch full QE in the beginning of 2015. The dollar dropped after the data disappointed. The zloty aimed at gains.

The US data are scheduled earlier this week due to the Thanksgiving. As a result, today's economic calendar is stuffed with reports.

The dollar fell as reports missed estimates. Unemployment claims rose to 313k from 292k in the previous week – more than 288k anticipated. Other reports also disappointed – income and spending added 0.2 percent – less than 0.4 percent projected.

Moreover, although durable goods orders rose 0.4 percent, core durable orders dropped 0.9 percent – less than 0.5 percent forecast. Additionally, afternoon data were also rather poor – new home sales, Chicago PMI report and Michigan University consumer sentiment missed expectations.

Conversely, the dollar didn't gain support from PCE inflation reading that showed an increase of 0.1 percent on a monthly basis – more than a flat growth anticipated. The major inflation gauge watched closely by the Federal Reserve provided additional arguments for the hawkish part of the Fed.

As a result, the US central bank will remain on track to rise interest rates in mid 2015, despite some weaker reports. Given that, the dollar will return to growth after short-term correction of its appreciation move.

The ECB gave QE term

The European Central Bank will asses whether to launch government bonds purchases in the first quarter of 2015, according to Vitor Constancio, the vice-president of the ECB cited by Reuters. Any decisions concerning an introduction of new measures have to wait until the ECB analyzes the impact of actions taken earlier.

What is important, was the firts time the ECB pointed at concrete term of the possible launch of the QE.

Moreover, the European Union will start an investment fund capable to support 315 billion euro projects. The fund will take share in risk of new investments what may help to mitigate risk-aversion lingering since the beginning of the crisis. The European Central Bank president Mario Draghi pointed at risk-aversion as a one of major factors that impedes the monetary policy transmission mechanism.

After poor US data the EUR/USD moved higher – the pair rose above 1.251 after three days of gains. Nevertheless, given the Fed's plan to rise rates in mid 2015 and the ECB considering to launch QE, current trend will be rather a brief one.

The rouble went down

OPEC will decide tomorrow on whether to cut output as a measure to support falling oil prices. The odds for that decision are rather small. However, even if OPEC decides to cut production quotas, it won't support oil price as the shale gas revolution in the US, more energy-efficient technology that reduces fuel consumption, strong dollar and weakness of the global economy, push the oil prices lower.

As a result, the oil prices resumed their drop without waiting for the OPEC's decision. This factor negatively impacted the rouble. The Russian currency fell again in a very high pace after a short period of gains. Falling oil price is one of a wide range of currency's problems.

Bloomberg informed that the Russian bond market will face even 10 bankruptcy within the end of first quarter of 2015. In the previous week the UTair Aviation failed to redeem its bonds. What is important, companies that struggle finance themselves in domestic currency, so they don't bear a currency risk, but only interest rate risk.

If current depreciation pace holds, the rubble will hit record lows very quickly. Today the USD/RUB rose 2.6 percent after yesterday's gain of 2.3 percent.

The zloty willing to gain

The latest comments from the Monetary Policy Council pointed at no interest rates cuts in December (a broader view in our morning commentary). If the GDP data scheduled on Friday and Monday's PMI report won't surprise negatively, the odds for cuts will diminish.

As a result, the zloty attains next arguments to exceed its growth. Given current positive market sentiment, the Polish currency may rise further and today's drop is only a brief stop.