Daily analysis 03.02.2015

Weaker ISM put some pressure on the dollar but it didn't last long. First plans to “deal” with the Greek debt. Unexpected interest rate cut in Australia. Significant oil rebound ends lower prices at the pumps. The zloty remains around 4.18 to the euro and below 4.00 to the franc before important MPC meeting.

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

• No macro data which may affect the analyzed pairs.

Weaker ISM, but the GDP growth should be solid

Significantly weaker than expected ISM reading might have been a good reason to weaken the US currency. Additionally not only the “headline” number was below the consensus but also other key subindexes disappointed. New orders dropped almost 5 points and the export slided below 50 marks which suggest that companies which are exposed to foreign trade can see their business to shrink.

The situation was partly “rescued” by ISM short comments which claims that “The past relationship between the PMI and the overall economy indicates that the PMI for January (53.5 percent) corresponds to a 3.3 percent increase in real gross domestic product on an annualized basis”. It is still better that the base case scenario from the Fed where members see the economy to grow around 3.0% in 2015.

In the recent days the EUR/USD failed both to exploit the opportunities to significant appreciate or depreciate. Similar situation was observed yesterday. After the weaker US data the EUR/USD rose briefly above 1.1350, but the main currency pair failed to keep the gains and it ended the day around between 1.13-1.1350. Because there is no significant macro news today the main catalyst to move the EUR/USD may be comments from FOMC, news from Greece or the EUR/CHF situation which partly is responsible for some stabilization on the euro-dollar.

Ideas from Greece

We have noted recently that the new Greece finance minister is prone to generate many problems. The economist, working on many international universities and specialist in game theories told yesterday to “Financial Times' than Athens will not seek a debt relief. Varoufakis, on the other hand, would like to change the current fiscal burden to less severe.

The first, according to “FT” will be bond related to the GDP growth and the second is suppose to be “perpetual bond” (never matures, only pays interests). Both instruments are known on the market but rarely used by government. Usually the more “sophisticated” instrument, the financing cost are higher, so such “ideas” are not well priced for the debtor.

However, in case of Greece 80% percent of bonds are held by the Troika (ECB, IMF, EU) and the financial conditions are not priced in the market. Theoretically any idea can be accepted by the public debt holders so probably plethora of new projects is going to hit the wires in followings weeks.

Australia unexpectedly cut interest rates

Australia is another country which loosened the monetary policy this year. It is also another time that the news was surprising for investors as majority of economists expected the rates to remain unchanged. However, reading the December statement the RBA didn't suggest any changes. But sometimes central banks are eager to surprise markets to make the decision more important and longer lasting.

The similar situation might be observed this time especially that the RBA has a good excuse – 2 month break which brought a lot of developments. It is also possible that more cuts are on the horizon and the AUD should remain under pressure despite the fact that it is already at 5-year low to the dollar. As a result we should expect more weakness on the “Aussie” and the fall to 0.70 in the the next three months is quite possible.

Foreign market in a few sentences

The EUR/USD is not able to make up its mind whether the preferable scenario is a more significant rebound or the slide resume. Theoretically the Federal Reserve still confirms that the interest rates are scheduled to rise in the mid year despite that the inflation and global growth may explain to keep the zero-rate-policy for longer. It supports the dollar. On the other hand the euro is getting some support from the SNB which “unofficially” tires to keep the EUR/CHF above 1.05 level. Additionally there is also an issue with Greece which hasn't had a significant impact on the market yen. As a result investors are waiting for an impulse to generate a larger move. Taking into the account fairly long stagnation the move can be significant especially to the upside. The market is still on the short side and a “short squeeze” can be translated into a rapid appreciation.

Slim chance for a surprise form the Polish MPC. The end of gasoline sliding trend

Since the beginning of the year we have had many surprising decisions from the central banks. Regardless what reasons crated the decision there were only rate cuts. As a result before tomorrow's rate decision there are also some speculations that the MPC may surprise.

However, in case of Poland it is less probable. Firstly the cuts in Canada, Norway, or Australia were mainly caused by the oil drop which not only pushed the inflation lower but also threatened the GDP or employment figures. Regarding the ECB, Switzerland or Russia the reasons were mostly local – Draghi took the opportunity to boost the growth with the QE program while the SNB or CBR decided in a specific circumstances which are not present in Poland.

Additionally taking into the account most recent comments from the MPC and especially the key members (Chojna-Duch, Hausner) there is still no will the push the rates lower in February and the Committee is clearly positioning itself to make a decision in March when it has the new inflation and GDP projections.

Summarizing the EUR/PLN should be traded today around 4.16-4.18 level and the CHF is not suppose to rise above 4.00 with most transactions to be processed around 3.95-3,98. Because we expect the MPC to keep rates unchanged the speed of further zloty appreciation should depend on the statement and Belka conference on Wednesday.

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

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