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Daily analysis 01.07.2014

1 Jul 2014 12:22|Marcin Lipka

The EUR/USD ignores weak data and continues the upside move. Williams in slight opposition to Bullard's comments. The cable soars above 1.71 due to solid PMI readings. The zloty is stable despite disappointing Manager's index. Investors are waiting for the MPC meeting results.

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

  • 16.000 CET: Manufacturing ISM reading from the US (survey 55.6 points).

Weaker dollar. Williams. The pound

Lack of concrete signals supporting the dollar caused that some long positions were reduced and the greenback lost value during last session. In result the EUR/USD jumped toward 1.37 level and the “cable” soared to 1.71 range.

The “greenback” weakness isn't the only factor causing EUR/USD to rise. It is also worth noting that the Euro is holding its value pretty well. During the recent days we had hardy any positive data for the Euro area. On the market there are some rumors that the situation may be similar to a mood which dominated at the beginning of the year. In January many expected that the dollar should rise significantly as the year progresses but this bets resulted in heavy losses. This time, however, the situation is much different. The European economy is stagnating and more monetary stimulus was introduced last months which naturally should weaken the local currency. Moreover, the US seems to accelerate the pace of recovery (except Q1) and we should expect interest rate hikes rather sooner than later. Concluding the current dollar weakness may be short-lived and can ended as early as this week (if solid data hit the wires).

Yesterday we had some comments from John Williams (helped to preserve some "greenback" weakness). The San Francisco Fed's president (slightly opposing to recent Bullard comments) said that the economy is expanding in line with expectations and the fist hikes are scheduled in H2 2015. The central banker also sees the full employment at different level (5.25%) than his more hawkish colleague (in highs of 5%). Williams also does not see any inflation threats and according to Reuters he claims it will get back to normal in “early 2016”.

On Monday the GBP/USD rose toward 1.71 level on the dollar weakens. Today another bullish move was directly caused by solid UK data. The British manufacturing PMI topped 57.5 level which was the second best reading in the last 40 months. In the publication Markit and CIPS noted that “average pace (of output – author's note) over the second quarter as a whole was the strongest in 20 years”. In the data there are no negative notes and the future for the UK does look really bright. In result, it should not be a surprise that we jumped toward 1.7140 shortly after the data was released (it is highly probable that more bullish moves are on the horizon, especially that 2014 rate hikes are still possible).

Today we have first important reading from the US scheduled for this week. If the ISM index soars above 56 points, it will be hard for the EUR/USD to stay around 1.3700 and we may level off the recent rises. On the other hand, weak manufacturing data can extend the dollar weakness and we will have to wait till Thursday to get final direction on the dollar.


The Polish PMI dropped to 50.3 level in the most recent analysis complied by Markit and HSBC (50 mark separates expansion from contraction). The state of future manufacturing is well presented in the first sentence of the summary section. “June survey data from HSBC signaled a broad stagnation in Polish manufacturing business conditions". It is also worth noting that except a slight rise in production and employment “new orders index dipped below 50, the lowest since May 2013”.

The overall grim reading left some light in the tunnel. Agata Urbańska-Giner, economist, Central & Eastern Europe at HSBC claims that “The PMI index points to a slowing GDP growth in the second quarter of this year. As for H2 2014/2015 outlook, improving labor market, strong investment performance in Q1 2014, recovering credit still suggest that the current weakness should not extend”.

We will see whether the similar conclusion is derived by the MPC after some soft recent readings and the macroeconomic projections presented by the NBP. If the majority supports the “temporary weakness” scenario, then the statement should be fairly neutral and some dovish calls can be quickly dismissed. It should serve as positive signal for the zloty and the EUR/PLN may return below 4.15. In the opposite scenario, the pressure on the zloty remains and the medium-term appreciation scenario can be push forward into the future.

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

Range EUR/USD 1.3550-1.3650 1.3450-1.3550 1.3650-1.3750
Range EUR/PLN 4.1200-4.1600 4.1200-4.1600 4.1200-4.1600
Range USD/PLN 3.0400-3.0800 3.0600-3.1000 3.0200-3.0600
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 1.6850-1.6950 1.6950-1.7050 1.6750-1.6850
Range GBP/PLN 5.1300-5.1700 5.1500-5.1900 5.1100-5.1500

1 Jul 2014 12:22|Marcin Lipka

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 acknowledgement of the source is prohibited.

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