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Daily analysis 05.02.2014

5 Feb 2014 11:45|Marcin Lipka

EUR/USD is waiting for macroeconomic signals from Europe and USA. Poland again found itself in the best basket of emerging markets. Reverse of trend on Australian dollar? MPC will probably wait with any declarations on changes of monetary policy until March inflation projection. Zloty enforces itself below the level of 4.20 per euro.

Most important macro data (CET). Estimations of macro data are based on Bloomberg's informations, unless marked otherwise.

  • PMI from services sector for Spain, Italy, Germany and France were published (Data from France and Germany were close to initial readings whereas publication from Italy and Spain overlapped economists' expectations. Thus the influence on currency market should not be noticed).
  • 11.00 CET: Retail sale from Euro Zone (estimations: minus 0.7% m/m).
  • Between 12.00 CET and 14.00 CET: Decision of MPC about money rates.
  • 14.15 CET: ADP report about new vacancies in private sector in USA (estimations 180 thousands)
  • 116.00 CET: ISM index from services sector in USA (estimations: 53,9; prognoses division between 52 and 55 points).

Data. Emerging markets. RBA

In previous hours EUR/USD has been rated in boarders of 1.35 level. Main currency pair is clearly waiting for the series of macroeconomic informations. Today's most important publications are ADP report from the American labour market (readings below 150 thousands should cause sale pressure on dollar) and ISM service report (after Monday's publishing of its industrial equivalent, the market is set on weaker reading, therefore if data will not be clearly worse than estimations – below 52 points – reaction should be limited, and the responsibility moved on weather conditions).

The discussion about emerging markets still carries on. In this context one should pay attention to report of “Capital Economics” (renowned and independent institution, who's studies mainly concentrate on macroeconomic data). Its fragments appear in “Don't Lump All Emerging Markets Together” article in today's “The Wall Street Journal”. Most of all the EM economies are divided into five groups - “Badly managed”, “Living above standards”, ones with “Weak banks”, ones with “National structural problems”, and ones whose future looks “Increasingly better”. In the first “basket” we can find Argentina, Ukraine and Venezuela. Currency crisis caused by the mistakes in governments' policy is expected in those countries. In the second group of countries we can find among others Turkey, Republic of South Africa or Thailand. There “development was stimulated by cheap credit and consumption, what caused significant increase of import”. In the scenario of tightening the monetary policy in the world (its first step is exiting from quantitive easing observed now in USA – author's footnote) these countries will have a problem to finance their high deficit on current accounts. Further “Capital Economics” points out, that Hungary, Romania and Bulgaria have problems with their banking systems, whereas India, Brazil and Russia with “review of their economic models”. China on the other hand, will have to face the overgrowth of credit share. Countries located in the best group of EM are South Korea, Philippines, Mexico, Poland and Czech Republic. According to “CE”, some of these countries have made a review of their economies and lowered the public debt (Open Pension Fund was not considered here!), and the others (Korea and Mexico) will take advantage from USA revival. “Capital Economics” report confirms market's general opinion. It is similar when it comes to the behaviour of mentioned countries' currencies. Those with biggest disproportions rate more sudden reductions of prices. Similar situation should maintain for at least following moths.

Australian dollar clearly gains value since Tuesday morning. It is caused by the announcement publishing after previous summit of RBA. The announcement lacked a paragraph about “uncomfortably high AUD rate” and necessity of “aussie's” decrease in order to balance the economic growth. AUD/USD pair significantly took off from the areas of 87 American cents per one “Australian”. It is not impossible that soon we will break through the level of 90. upwards, because investors' attitude towards AUD/USD was declining for a longer time and probably most of them will be alarmed by RBA modified standpoint.

In conclusion, we will have to wait for more decisive movements of EUR/USD until macroeconomic data (today – ADP and ISM, tomorrow ECB summit and on Friday – most important data from American labour market). Until macroeconomic informations will not point out concrete direction, we should be balancing in areas of 1.35.

Below 4.20. MPC

Today morning we could observe the continuation of zloty's enforcement. After breaking through the level of 4.20 by the EUR/PLN pair, we are currently beginning to come below 4.19. National currency's enforcement has clearly a connection with retreat of speculation positions against PLN. Significant part of the players must have expected zloty's further weakening, but yesterday's session clearly surprised them. Today we can observe some panic sales of currencies. Such situation significantly increases the probability of return of EUR/PLN to variety division 4.14-4.18 per euro, when the situation on emerging markets will stabilize.

Today we have second summit of MPC this year. Market is not expecting varying of money rates, nor monetary policy's modifications (for example more hawk attitude). To see any move by the Council, we will have to wait at least until March and publishing of NBP estimations about economic growth and inflation.

In conclusion, morning purchasing of zloty is mainly a result of closing the positions by short term investors. Until the end of the day, the national currency should become stable and it is not impossible that it will again approach the level of 4.20 on EUR/PLN.

Expected levels of PLN according to the EUR/USD rate

Range EUR/USD 1.3550-1.3650 1.3650-1.3750 1.3450-1.3550
Range EUR/PLN 4.1800-4.2200 4.1800-4.2200 4.1800-4.2200
Range USD/PLN 3.0700-3.1100 3.0500-3.0900 3.1000-3.1400
Range CHF/PLN 3.4200-3.4600 3.4200-3.4600 3.4200-3.4600

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

Range GBP/USD 1.6350-1.6450 1.6450-1.6550 1.6250-1.6350
Range GBP/PLN 5.0700-5.1100 5.0900-5.1300 5.0500-5.0900

5 Feb 2014 11:45|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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