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Daily analysis 02.12.2014

2 Dec 2014 12:39|Marcin Lipka

Mixed signals from ISM and rumours before the ECB summit, shape the rate of EUR/USD. Speculations about possible intervention of SNB, enforce the European debt. Rouble's swing takes bigger and bigger sizes. Zloty goes down in the areas of 4.16 per euro and below 3.46 per franc, before MPC summit and decisions in Frankfurt.

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

  • No macro data which may significantly affect the analyzed pairs.


Before yesterday, the report of American logistics managers index seemed to indicate, that ISM reading will be slightly weaker than the expected 58 points (other publications of overtaking indexes were not that good in the past weeks). However, the anxieties appeared to be unjustified. The future development of industry on the other side of the ocean draws itself in bright colours, which is only confirmed by the reading on the level of 58.7 points.

It is also worth paying attention to sub-indexes of new orders and production. They have maintained in the areas of 65. This publication however, was not entirely bullish for the dollar. The component of prices has recorded a serious decrease – by 9 points, down to 44.5 – which means, that the pressure of lower prices due to the decrease of raw materials (but not only them), may convert on a lower inflation. This, on the other hand, will delay the interest rates increase in USA. However, this concept was not confirmed by the behaviour of 10-year old treasury bonds, which profitability has reached the minimum levels (2.15%) before the ISM report (anxiety of a worse reading), and later went back above 2.20%.

So the rumours about the possibility of activating or signalizing QE by ECB on this Thursday, must have had the biggest influence on EUR/USD getting back in the lower areas of 1.24. According to BNP Paribas, whose opinion is quoted by today's “The Wall Street Journal”, the bank expects, that if on Thursday ECB will “increase the purchase of assets and include there the treasury bonds and revise the inflation prognoses downwards”.

Citigroup is also close to these views. Its strategists think that not only will it be difficult for Mario Draghi and his colleagues to increase the bank's balance by 1 trillion euro with the purchase of ABS and mortgage bonds, but also increasing it by buying treasury instruments may not be enough. Other market's participants (also quoted by “WSJ”), however, are not convinced about “the inevitability of full QE”. They claim that the sooner we will see the improvement of the European economic situation and the additional purchase will not be necessary (J.P. Morgan) or underline ECB faith in their current actions (UBS) that will refrain from sudden decisions.

Considering Draghi's recent statements and the statement after the Bank's summit, the monetary authorities from Frankfurt are really preparing the market for increasing the assets purchase by treasury instruments. However, there is a very small chance for this operation to be announced in December. ECB has barely started purchasing ABS and mortgage bonds and the second part of TLTRO is still ahead of us. Thus, the basis scenario for the upcoming summit, is actually a repeat of the recent communicate with a slightly dovish undertone of inflation's revision downwards. However, this fact should not push EUR/USD on new minimums.

We can observe slight increases on EUR/CHF (up to 1.2040) for couple of hours now. It may be related with the topic described in previous paragraphs. Some market's participants are anxious about the ECB starting purchasing assets, in which case SNB may intervene on the currency market. It may also mobilise the purchase on the European market of debt instruments (the whole mechanism was very well described in Reuters' article „Swiss National Bank Could Supercharge ECB bond-buying”).

However, we still think that this is not a moment of clear rebound for EUR/CHF, although of course the market's participants on “short” position, may begin to reduce the positions on franc before ECB summit, and taking it above the limit of 1.2050.

This day is another one, in which it is difficult not to refer to the rouble. Yesterday, the Russian currency was loosing almost 8 per cent in relation to the dollar at a certain moment. After that, probably the intervention of central bank occurred (relatively small in market participants' opinion – 0.5-1.0 billion USD), which combined with the correction on the oil market, annulled over a half of the weakening.

The above situation will probably repeat itself many times. For the government, a weaker local currency is a stabilizer for shrinking incomes from oil. On the other hand, the central bank is not quite willing to actively fight the speculators (anyway it was not successful in October, when CBR exchanged 30 billion USD for roubles, and RUB rate kept on getting weaker).

Finally, the Russian ministry of economy presented the prognoses for the year 2015. The economy will shrink by 0.8%, the average price of oil will amount 80 USD, 90 billion USD of capital (according to new estimations, this year it was 125) will leave Moscow, and the average rate of dollar will be 49 roubles.

In conclusion, despite the yesterday's EUR/USD weakening, which was caused by emerging discussion about a quick introduction of QE in euro zone, the main currency pair should maintain in the limits of 1.24 area, up until Thursday conference of Mario Draghi.

Clearly stronger zloty

The scenario of a stronger zloty, which we have announced two weeks ago, is on now. Better data from national economy, combined with relatively hawkish attitude of MPC and also speculations about treasury bonds purchase by ECB take EUR/PLN in areas of 4.1600, and CHF/PLN is listed in the mid areas of 3.45.

Stronger national currency should maintain, especially in the scenario of slow withdrawal from mild attitude in monetary policy by MPC (tomorrow's statement and press conference after the summit will be crucial in that matter). On the other hand, one should not expect a very visible drop on EUR/PLN until the end of the week (below 4.15), unless ECB will surprise all with a clear plan of QE introduction. Going in the area of 4.12-4.10 would not be excluded in that case.

The falls of EUR/PLN in the limits of 4.16 from before noon, will probably not be deepened in the afternoon. The situation on franc will look similar. It has small chances for going below 3.45 before the main events of second part of the week.

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

2 Dec 2014 12:39|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:

1 Dec 2014 17:00

Afternoon analysis 01.12.2014

1 Dec 2014 12:21

Daily analysis 01.12.2014

29 Nov 2014 18:42

Afternoon analysis 28.11.2014

28 Nov 2014 12:13

Daily analysis 28.11.2014

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