Daily analysis 04.03.2014

The tension between Russia and Ukraine is still pretty modest for the EUR/USD. Interventions on the ruble market and contradictory opinions on the Russian currency future. Media rumors. Will the recent turmoil bring Poland closer to the euro area? The zloty is stronger after the Monday's slide.

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

• No economic data which can influence the analyzed pairs.

Russia. Data. Media rumors

Monday wasn't easy for the equity owners. Stocks slumped all over the world but most hurt were the markets close to the epicenter. Moscow benchmarks dropped by 10%, WSE lost 5%, Frankfurt slided over 3%, London lost around 1.5% and the US declined less than 1%. On one hand, the geographical closeness means more problems for states which are near the conflict, but it is also connected to capital and economical ties. The same situation was observed with currencies. The ruble, zloty and forint retaliated the most and, for example, Mexican peso (which is usually in the same basket as the zloty) hasn't moved much since the beginning of the week. The EUR/USD is also pretty stable and we are beginning the European session just 50 pips below Friday's close (before the whole political crisis started).

Leaving the Ukrainian issues for a paragraph, it is worth to look closer on Monday's data from the US. The most important reading was ISM index which rose to 53.2 points, whereas according to the Bloomberg survey it was supposed to increase just to 51.9 points. Taking into the account severe weather conditions, the publication was pretty strong, but if we look to the subindicies, the picture is not that bright. There was a significant increase in inventories (not an optimistic signal) and the production dropped to the lowest level since 2009. A closely watched part – employment – remained unchanged. In result, the ISM was judged as neutral both due to weather issues and mixed signals from subindicies. Regarding the future Federal Reserve decision we had also the PCE price index. The Fed claims that the PCE is the best inflation indicator and it rose yesterday to 1.2% y/y which is 0.4 percentage points higher than in October of 2013. It can be interpreted as a bullish signal for the dollar because it brings the monetary policy to use more standard tools (keeping the pace of tapering).

On Monday we had a high volatility on Russian assets. The ruble lost more than two percent to the dollar and most the cheapest in history to the euro. Bloomberg reports that according to Pavel Demetchik from ING, the central bank sold around 10 billion dollars yesterday to call the local currency. According to BCS Financial Group, the intervention exceeded 7 billion. Tomorrow we should get the official data from the Russian side. There are some contradictory opinions regarding the future ruble conditions. Goldman Sachs claims that the further pressure is limited but, on the other hand, Renaissance Capital from Moscow reports that the ruble can weaker further – to 38-39 per the dollar (from 36.30 currently) and the central bank will establish a ceiling to the USD/RUB pair. In the short term the tension between Russia and the West should shape the ruble, whereas in the future the bettered sentiment toward Moscow can slow the comeback move.

Yesterday we also witnessed how the information rumor can last for hours. Just after 16.00 CET news agency Interfax reported that if the Ukrainian army in Crimea does not surrender by 4.00 CET then Russia starts a military intervention. After an hour, as Euronews reports, Russia denied such reports. Additionally, the message was not even confirmed by the Ukrainian Defense Ministry (where Interfax obtained the report). It didn't change the fact that the news was all around the media for several hours without further details that it was denied by Moscow and not confirmed by Ukraine.

Summarizing, the EUR/USD remains still pretty resilient to the sentiment deterioration. If we don't get any more dramatic news from the West-Russia conflict the most heavily traded currency pair should focus on the ECB meeting on Thursday and NFP on Friday.

Belka on the euro

During most of the day, the zloty was traded around 4.20 per the euro, but in the late afternoon we experienced a significant deprecation on the PLN which can be directly attributed to possible intervention in Crimea from the interfax agency. Some investors probably feared that if something happens during the night, they would be unable to close the positions. Today in the morning the situation is pretty calm and we dropped from 4.22 to 4.19 on the EUR/PLN.

Polish Press Agency published some interesting remarks from NBP chief. Marek Belka said that “the current crisis (political – author's note) shows that it is worth to invest in the European Union. It is worth to look at the euro area accession case. Events in the Eastern Europe are not helping to proceed safe and stable economic policy including the monetary one”. The MPC chairman opinion is particularly interesting because just three weeks ago he said that (quotes from PAP) “ I don't support joining the Euro Zone in the foreseeable” because it results in a loss of tools available for countries having their own currencies. It is really interesting whether Belka really changed his mind due to recent developments or he just wanted to intervene verbally. Maybe he will elaborate more on Tomorrow's MPC press conference.

Summarizing, the zloty should be still influenced by the Ukrainian issues. In case of some stabilization we should remain under 4.20 per the euro but if the conflict escalates, we will expect a further PLN depreciation toward 4.25 per the euro and above 3.50 on the Swiss franc.

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

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