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Daily analysis 02.01.2014

2 Jan 2015 12:33|Marcin Lipka

The EUR/USD slided towards 4-year lows at around 1.20. European government bonds are unaffected by the Greek threats. Significant volatility on the zloty, but the PMI should be regarded as a positive impulse.

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

  • 16.00 CET: Manufacturing ISM index from the US (survey: 57.5 point).

The euro under significant pressure

Several days ago we suggested a relative fast slide on the EUR/USD to around 1.20. Today the most heavily traded currency pair dropped to 1.2034 dropping to four-and-half year lows. Market participants are still trying to fully evaluate what impact for the single currency may have the Greek election or the most recent interview with the ECB chief economist.

EUR/USD in last 15 years

Wykres - EUR 15 lat

Source:Bloomberg. EUR/USD fall means weaker euro against the dollar. Monthly interval.

Investors also focused on some topics presented by Draghi in the Handelsblatt. It is worth noting, however, that the ECB chief was rather reluctant to reveal more details concerning additional measures in the monetary policy for the business oriented newspaper. He basically only claimed that the risk of deflation was higher than 6-months ago, but it was rather obvious taking into the account oil slump.

The euro should remain under pressure. There are few arguments to purchase the common currency currently, but before sliding under 1.20 we can witness a slight correction.

Calm trading in the peripheries

The fixed income market is not concerned with the Greek turmoil. Spanish and Italian 10-year yield bonds dropped to record low levels at 1.5% and 1.8% respectively. It confirms, of course, a scenario that the euro zone is under threat of extremely low inflation for the incoming quarters but rejected the idea that Greece may take a toll for other peripheral countries as it was observed in 2010 or 2011.

Spanish and Italian bond yields in the last 5 years

Wykres - rentowność obligacji

Source: Bloomberg. The yellow line represents the Spanish bond yields and the white one - the Italian bond yields.

A proof that the threat, according to market participants, is small also comes from a spread between 10-year German and Spanish benchmark which dropped below 100 basis points first time since 2010. The other argument to keep the high debt valuation is an increasing chance that the ECB starts buying debt pretty soon. As a result we should still expect narrower spreads and more downward pressure on the euro area yields.

Foreign market in a few sentences

The EUR/USD should remain under a significant pressure, but long lasting slide below 1.20 will probably be cut by a correction move. Today it is worth taking a look at the ISM reading from the US. It is the most important leading indicator for American manufacturing and therefore a solid data (above 58.5) should increase the downward pressure on the EUR/SD and give an impulse to retest the 4-year lows.

Solid PMI, but the PMI not really eager to appreciate

At the beginning of the session the zloty lost around 0.04 PLN to the euro in 20 minutes. The move was initiated without any particular reason. It is hard to say whether the slide was a side effect of the moves we had observed during the Christmas week. We may assume that such situations can repeat in the future as the market is getting more and more volatile.

EUR/PLN in the last 3 days

Wykres - EUR 3 dni

Source: Bloomberg. EUR/PLN strengthening means stronger euro and weaker dollar.

At 9.00 CET investors received a solid PMI reading from Poland. Despite the fact that the Purchasing Managers' Index dropped from 53.2 to 52.8 the components looked to be pretty healthy. Markit and HSBC, who prepared the manufacturing survey, claim that a significant increase of new orders were observed and the production growth jumped to a fastest pace in 8 months.

Similarly optimistic was job market where Polish producers increased the employment again and the pace of rise was the strongest since April.

Both today and in the following days the market my remain pretty nervous. However, taking into the account the PMI reading the odds for interest rate drop decreased so a downward pressure both for the EUR/PLN and CHF/PLN should be observed.

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

Range EUR/USD 1.2050-1.2150 1.1950-1.2050 1.2150-1.2250
Range EUR/PLN 4.2800-4.3200 4.2800-4.3200 4.2800-4.3200
Range USD/PLN 3.5400-3.5800 3.5700-3.6100 3.5100-3.5500
Range CHF/PLN 3.5600-3.6000 3.5600-3.6000 3.5600-3.6000


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


Range GBP/USD 1.5450-1.5550 1.5350-1.5450 1.5550-1.5650
Range GBP/PLN 5.5100-5.5500 5.4900-5.5300 5.5300-5.5700


2 Jan 2015 12:33|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.

See also:

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Afternoon analysis 30.12.2014

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