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Daily analysis 02.06.2014

2 Jun 2014 11:52|Marcin Lipka

Data from Europe and USA do not change the situation on EUR/USD. Leaks about Thursday's decision of ECB. A week full of macro reports and probably increased volatility. Surprisingly weak reading of national PMI. Belka does not intend to “stimulate the inflation in artificial way”.

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

  • Around 13.00/14.00 CET: Initial data about inflation from Germany (estimations: +1.0% r/r).
  • 16.00 CET: Industrial ISM from USA (survey: 55.5 points).
  • 11.00 CET (tomorrow): HICP inflation from Euro Zone (estimations: +0.7% r/r).

Data. Gossip. Week

EUR/USD market is still waiting for Thursday's decisions of ECB. A will to build a certain weakening appeared on Friday afternoon. Today, however, we are again falling in the areas of round level of 1.3600.

Data that were published today did not support the correction on main currency pair. Industrial PMI from Italy and Spain were below economists' expectations. The final readings from Germany (52.3 vs initial 52.9) and Euro Zone (52.2 vs 52.5) have also appeared to be slightly lower. Only French Logistics Managers Index from industry broke through the initial readings from before nearly two weeks, but still we did not return above the level of 50, which divides the development from regress.

The investors are actually certain that ECB will decrease the interest reference rate, as well as the deposit rate. The latter will fall below the limit of zero and will probably amount minus 0.1%. We can assume that these information are already calculated in price of Euro. Today's “Financial Times”, quoting its sources, reveals what can be included in the announced package (which is not only the changes of money's value, but also some extra actions that could stimulate the economy). „FT” claims, that Bundesbank chairman agreed to support the ECB proposition, about “decreasing (credit – author's note) difficulties for small and medium companies in those parts of Euro Zone, which are facing the biggest problems”. The newspaper, citing its sources, also claims that ECB will probably announce a program of cheap loans for banks (similar to LTRO which was used earlier) only that their interest will depend on “banks' involvement in improvement credit actions in certain areas”. Right now it is difficult to foresee if such operation has a chance for success. Its effects will be probably visible not sooner than in few quarters from now. We can also have an impression that everything in Euro Zone is happening too late and it does not help to use the monetary policy effectively. These actions (regional, special credits) should not have a direct transfer especially when it comes to the currency market. However, they can show if ECB is more determined for further actions and maybe also introduction quantitative easing in the future.

Upcoming days will bring a lot of interesting data. Apart from today's inflation readings from Germany and ISM from USA, we also have Tuesday's HICP from Euro Zone (second most awaited figure of the week) and also ECB decision on Thursday's afternoon. We can also not forget about the readings from American labour market (as usually on Friday). If everything in European Central Bank will go according to expectations, the last word this week may belong to payrolls.

In conclusion, we have a few very interesting days ahead of us that may change the fate of many currency pairs. EUR/USD is still set on falls. However, even in case of low inflation readings we should not get further from 1.3600 significantly, before ECB summit.

Weak PMI. Belka on inflation

Industrial PMI from Poland published this morning by Markit and HSBC was clearly below the forecasts and previous month's reading (50.8 vs 52 points). Logistics Managers Index had “barely” maintained above the level of 50 points and was cheapest since nearly a year. It is also worth paying attention to the fact that for the first time since May 2013 we have observed a fall on orders generated by export. This fact can of course be explained by the situation behind our eastern boarder. However, it is certainly not an optimistic signal for the upcoming quarters, when it comes to current account or even contribution of export netto to GDP.

The zloty did not react to the PMI publication with dramatical changes (and later it had even slightly strengthened) but this fact should be attributed to the specific market situation (quite weak data from the Euro Zone overestimated the common currency – bigger pressure on ECB, which at the same time is and argument for occupying long positions on emerging markets – cheap money will be searching for higher rates of return) than to ignoring this publication. It cannot be excluded that zloty was also slightly supported by the weekend interview with president Belka for Polish Press Agency. Despite the fact that it was mainly about 25 years of transformation, the chief of NBP said, that he “does not intend to stimulate the inflation in artificial way”, what can be understood as the end (at least currently) of the discussion about any “projects” of money rates' decrease.

In conclusion, the basis scenario for zloty is still moving near the levels of 4.14 per Euro and slightly below 3.40 on franc. The lower the inflation in Germany or tomorrow in Euro Zone, the bigger chance for a slight strengthening of national currency (in anticipation for more sudden moves of ECB).

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

Range EUR/USD 1.3650-1.3750 1.3750-1.3850 1.3550-1.3650
Range EUR/PLN 4.1400-4.1800 4.1400-4.1800 4.1400-4.1800
Range USD/PLN 3.0200-3.0600 3.0000-3.0400 3.0400-3.0800
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 5.0900-5.1300 5.1100-5.1500 5.0700-5.1100

2 Jun 2014 11:52|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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