Daily analysis 05.02.2015

The ECB stopped to accept the Greek debt as a collateral from local banks. Good “test” for EUR/CHF. Panic in Ukraine – interest rate hike and 10% hryvnia depreciation. The zloty remains fairly stable despite the MPC suggestion of 50 bps cut in March.

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

• 14.30 CET: Weekly jobless claims form the US (survey 290k).

Interesting move from the ECB

In late afternoon the ECB announced that it will no longer accept the Greek bonds as a collateral from the liquidity operations for the local banks. The monetary policy makers from Frankfurt claim that their decision is based on the fact that “ it is currently not possible to assume a successful conclusion of the programme review”.

It is clearly a warning sings for Athens that it is the highest time to make some constructive decisions by the new administration. Theoretically the ECB move is not a great threat for banks. Firstly their assets are not only based on Greek debt and other instruments are still acceptable. Secondly the banks may still use the ELA operation where the liquidity is not delivered straight from the ECB to the banks but through the Greek central bank. The second option is more costly (by 1 percentage point) what in the deposit outflow ma be another issue for the banks, but does not really increase the odds for Grexit.

The reaction from EUR/USD in the evening on illiquid market was fairly volatile and the euro dropped 100 pips to the dollars. Today in the morning the situation reverses. The market (probably right) takes the ECB action a pressure element to push the current administration to respect previous agreements.

Odds on the EUR/USD to continue correction decreased but should not be ruled out. Besides the ECB action also the macro data did work against the common currency. However, the key reading is still scheduled on Friday. If the “payrolls” turns out to be below 200k than we may see some stronger correction on the dollar which should push the EUR/USD toward 1.15. And there is still support from the EUR/CHF.

The EUR/CHF condition

The yesterday's ECB decision was a good test on the EUR/CHF condition and the hypothetical action around 1.05 level. The EUR/CHF fairly quickly tested the “new” floor but then the slide paused despite the EUR/USD bottomed much later.

It is hard to say whether the SNB intervened during the night or just speculators weren't sure if the further slide might provoke a stronger reaction from the Swiss authorities. Additionally, the EUR/CHF has been rising significantly from the morning and it returned to the rate registered before the ECB decision. As a result there is higher and higher probability that the EUR/CHF stays above 1.05 which translates to the CHF/PLN being below 4.00.

EUR/CHF in the last three days

Source: Bloomberg. The raise of EUR/CHF value means the weakening of the franc against the euro.

Panic in Ukraine

Ukrainian Central Bank (NBU) decided to raise the interest rates by 5.5% to 19.5% and float the currency. The hryvnia immediately lost more than 10 percent of value and the USD/UAH is currently traded around 19.00 level. It is still much less that the black market rate. The “Minfin” portal, which established a real currency exchange market with bids and offers valued around 5 million USD quotes the dollar-hryvnia rate around 22.00.

USD/UAH throughout last year

Source: Bloomberg. The raise of USD/UAH means the weakening of the Ukrainian currency against the American dollar.

Additionally, during the moments of tension, there are also speculations that the central bank even positions itself to rate around 25. Other Ukrainian data also seems to be dire and the projections are unfavourable. Kiev will have to probably announce bankruptcy despite the fact that the IMF is set to increase the emergency funding.

The cut in March is certain. 50 bps on the horizon?

In line with expectations the MPC decided to leave interest rates unchanged. From the statement we may conclude that the Committee kept the benchmark at 2% level due to some uncertainty on the currency market caused by Swiss franc volatility. However, when situation calms down and the MPC receives new economic projections it will decide to cut interest rate.

The question which arises is whether the decrease is going to be 25 or 50 bps. A good hint came during the conference when the governor answering a question from Reuters said that “I thing yes, it may be larger”.

So we should conclude that if the EUR/PLN stays safe below 4.20 and the new macro projections confirms the lower path of the inflation the,50 bps cut comes as a base case scenario. It is a negative message for the appreciation scenario for the PLN. However, the promise also may serve as a stabilization effect. If the PLN depreciates that the cut may be smaller.

Regarding the franc, the behaviour of EUR/CHF is encouraging. The CHF/PLN should remain in the 3.90-4.00 range with a higher probability of falling lower than moving higher.

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

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