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Daily analysis 01.12.2014

1 Dec 2014 12:21|Marcin Lipka

The Swiss reject “the golden initiative”. The Moody's agency drops Japan's rating. After the reduction of the oil prices to their 5-years minimums, the rouble falls on its knees again. Final PMI reading from Europe appeared to be slightly weaker. Slight morning weakened on zloty has been stopped due to a better than expected reading of PMI from Poland. On Christmas basic fuels will cost 4.50?

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

  • 16.00 CET: Industrial PMI from USA (estimations: 58 points).

“No”. Rating. Rouble. PMI

The Swiss have rejected “the golden initiative”, with a decisive majority of votes (77% against vs 23% for). Thus, the central bank will not have to increase the gold reserves and maintain them above the level of 20% of currencies' general percentage. It means, that our estimations have been confirmed. And not only those speaking of the domination of “no” votes. Also, those underlining the fact, that the first surveys, which were a reason for a wide discussion about franc's level, were very unreliable (conducted via internet), and also that the central authorities will join the society's education very actively.

Also according to what we have been writing for a longer time, rejecting “the golden initiative”, will not be related with a sudden and clear appreciation of EUR/CHF. The euro, in relation to franc, increased by barely a dozen or so pips (to approximately 1.2030) and will probably remain in current limits. Considering the specifics of this market, SNB will have to either introduce the negative interest rates or the part of wallet capital located in CHF, will be “pushed out” by the actions of speculators. So the basis scenario is still remaining of EUR/CHF slightly above 1.2000 with a much bigger chance for bouncing upwards, than for a successful test of “the floor” in the upcoming weeks.

In the morning Moody's agency have cut Japan's rating from the level AA3 to A1, claiming that it is because of the increase of uncertainty concerning the plans of deficit limiting and effective revival of economic growth by Japan. What is interesting, Tokyo's credit credibility is currently at the same level as Israel's or Czech's, and only one grade above Poland's. As a reaction on this decision, yen reached new 7-years minimums in relation to the dollar, but this movement has been quickly corrected. It is not excluded, that some investors might have thought, that it is a good moment to realize the profits, and at the same time Moody's decision may be also an argument for the ruling coalition, to slightly stop Abe's stimulation plans. In consequence it could help the Japanese currency (although it is a slightly “stretched” reason). In a longer term however, yen should still be under further pressure, and the level of 120 on USD/JPY will probably be crossed before the end of the year.

The rouble hit the news headlines again. The Russian currency have “worked off the losses” to the oil, which decreased by 4 per cent on Friday, while the Moscow currency market was already closed. This way, the dollar now costs over 52 RUB, and from the beginning of July, the Russian currency lost 35 per cent of value in relation to “the buck” (looking at it from the other hand, USD is more expensive by over a half, than it was at the beginning of summer holiday). Actually, it perfectly overlaps with the decrease of Brent oil (minus 38%) in the same time.

If the energetic resources will not clearly work off the significant part of their losses on the global stock markets (the chance for a bigger rebound is very small at the moment), the rouble will remain under a clear pressure. Additionally, we should also remember about a strong speculation on the currency, and still lasting geopolitical tenses.

Today's quotations of EUR/USD maintain close to the level of 1.2450 and were slightly disturbed by the behaviours on USD/JPY and the final, weaker than initial, PMI (industrial one for the euro zone only slightly crosses 50 points, and the German dropped to 49.5). For the participants of currency market, afternoon's ISM readings will be important today (it probably may be slightly worse than the estimations in the areas of 58 points; nationwide PMI and the one from Chicago region, were below the consensus).

The above mentioned data however, will not be crucial this week. The main currency pair should wait for EBC summit on Thursday and readings from American labour market on Friday. Until than, we should not cross the areas of 1.24 neither upwards or downwards.

Positive PMI. Fuel prices

Industrial Purchasing Manager's Index prepared by Markit and HSBC, increased to the level of 53.2 points from 51.2, by the estimations in limits of 51. In her data comment Agata Urbańska-Giner notices, that “the PMI reading from November was mostly supported by the increasing production and new orders. For the first time from seven months, there was an increase in new orders in export”.

The HSBC economist also claims, that “the consolidation of growth tempo in the upcoming quarters will be on the level of approximately 3% y/y and it should support the policy of stable interest rates in Poland”. And it is mainly this argument, that contributes to the enforcement of national currency. Wednesday's summit of MPC should also confirm this fact. After it, the interest rates will probably remain on the current level, and chairman Belka, who has recently been dovish, will not suggest soothing the monetary policy that often in the nearest future. Additionally, if the sentiments on the wide market will be neutral or supportive (the appetite for risk measured by the American shares, stable EUR/USD), we can even go down to the limits of 4.15-4.16 by the end of the week.

We will end this text with another piece of good information from the fuel market. The drop of Brent oil below 70 USD per barrel, is a bigger chance for the scenario of Christmas filling in limits of 4.50 per litre. Additionally, during recent 3 days, the wholesale price of PB 95 dropped by 150 PLN per one thousand litres (data from LOTOS), what should convert to at least 0.15 PLN drops on retail prices within one or two weeks.

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

Range EUR/USD 1.2450-1.2550 1.2350-1.2450 1.2550-1.2650
Range EUR/PLN 4.1600-4.2000 4.1600-4.2000 4.1600-4.2000
Range USD/PLN 3.3200-3.3600 3.3400-3.3800 3.3000-3.3400
Range CHF/PLN 3.4600-3.5000 3.4600-3.5000 3.4600-3.5000

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

Range GBP/USD 1.5650-1.5750 1.5550-1.5650 1.5750-1.6850
Range GBP/PLN 5.2500-5.2900 5.2300-5.2700 5.2700-5.3100

1 Dec 2014 12:21|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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Attractive exchange rates of 27 currencies