Daily analysis 03.06.2014

Despite very low reading of inflation from Euro Zone , EUR/USD is still in the limits of 1.3600. Confusion concerning the publication of American ISM. Maintenance of fall pressure on Swedish krona. Decision about money rates in Poland should not disturb the stabilisation on zloty.

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

• Between 12.00 CET and 14.00 CET: Decision about interest rates in Poland (survey: no changes on level of 2.5%).
• 16.00 CET: Press conference of president Marek Belka after the Council's summit.

Inflation. ISM. Swedish krona

Another hours of calm trade on EUR/USD are behind us. Lack of significant changes was caused neither by the reading of American ISM, nor by exceptionally low inflation in Euro Zone (0.5%). However, this second publication has a chance to “make some commotion” during the upcoming days.

Most of all it refers to June's summit of European Central Bank, which decision will be revealed on nearest Thursday. Mario Draghi and his associates have an open door to ease the monetary policy. It has been confirmed by the inflation index from Euro Zone, published just a while ago. Despite that the economists' expectations were reduced from earlier 0.7% to 0.6% after yesterday's low readings of prices increase from Germany, HICP from the area of common currency did not stand up to these estimations and the data appeared to be even 0.1% lower. What is interesting, the value of Euro in relation to dollar looks like glued to the level of 1.3600 and it confirms the concept, that only Thursday's afternoon and “displays” performed by the Board of the Governors and chairman Draghi are able to cause higher variability on the main currency pair.

We have witnessed some commotion concerning yesterday's publication of American ISM index. Barometer examining the sentiments in industry on the other side of the ocean appeared to be much below the forecasts in the reading (first one) presented at 16.00 CET – 53.2 points vs the expectations in limits of 55.5. It caused even a few points fall on the main index behind the ocean – S&P500. However as “The Wall Street Journal” reports, a lot of economists claimed that there was a mistake in index's calculations and it has probably been “de-seasonized” incorrectly. This concept has been confirmed very quickly and ISM was corrected to 56 points (a significant change, especially due to the fact that it concerned some crucial elements). Shortly after that the Institute of Liquidity Management changed the communicate again and eventually we received a reading on the level of 55.4 (which coincided with the primary expectations). Apart from quite a big fuss that remained after this publication (it did, however, concern rather the stock market than the currency) it is worth noticing that the sentiments in the industry remain very good and the main subindexes (of production and new orders) indicate the revival's continuation. Only the employment component descended a little but it should not spoil a solid and pro-dollar undertone of the publication.

Variability of ratings on Swedish krona is still increased. After worse than expected data about GDP for the first quarter published last week, yesterday we received quite a doveish statement from Central Bank's vice-president. As Bloomberg reports, Per Jansson said that “it is alarming that we have such low inflation”. Jansson also added that “if the long term inflation expectations will deflect from the goal, it will be too late”. Too late, of course, for lowering the interest rates. Vice-president of Riksbank also added that the upcoming CPI readings (on June 12th) before bank's summit planned on July will be crucial. Considering the market's attitude and current levels of EUR/SEK (9.10 close to the annual peaks), we can expect that the investors will also play under the other information – e.g. tomorrow's data about the industrial production, that can be used for reaching the new peaks on Euro – krona pair.

In conclusion, lack of reaction to the very low readings in Euro Zone only confirms the hypothesis of EUR/USD maintenance in the areas of 1.3600 until Thursday's summit. There is even a chance for a slight rebound as the “short positions” disappointed by the lack of falls on macro data can slowly walk out from the market.

Stabilisation on PLN

Zloty remains stable in relation to main currencies. We pay for Euro in limits of 4.14 and for franc a little less than 3.40. This situation should not change after announcing the decision about money rates (exceptionally today instead of Wednesday because of the 25th anniversary of June transformations). Press conference of president Belka, on the other hand, can be slightly more interesting. It is certain, that there will be some questions about very low inflation's reading (+0.3% r/r) and if there is any scenario assuming the decrease of interest rates. It is not excluded that MPC chairman will be asked about the weak reading of national PMI and actions towards ECB. However, it is difficult to expect any breaking answers and probably zloty will finish the conference at the same level it opened.

In conclusion, the upcoming hours should be stable for the national currency and we should not leave the division of 4.14 plus/minus 0.01 PLN per Euro, and 3.40 on franc. Dollar and pound will probably also remain in the limits of previous variabilities.

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

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