Daily analysis 05.03.2015

Good reading of the ISM service from the American economy, allowed the dollar for another wave of appreciation. Is today's EBC summit really an important event? Does Swiss government wants SNB to set again maximum franc's rate? Zloty is moving in the areas of 4.14 per euro, after surprising decision of MPC, hawkish communicate, and Belka's comment.

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

• Probably between 12.00 CET, and 14.00 CET: decision of MPC about interest rates (estimations: decrease by 25 basis points).
• 13.45 CET: EBC decision about interest rates (estimations: without changes, on the level of 0.05%).
• 14.30 CET: Mario Darghi's conference after EBC.
• 14.30 CET: Weekly data about unemployment benefits in USA (estimations: +295 thousand).
• 16.00 CET: Demands in American industry (estimations: +0.2% for January).

Test of level 1.10 on EUR/USD

Due to perspective of worse macro data on the other side of the ocean, we were supposed to see a weakening of the American currency. Those small hopes that were circulating the market, have however quickly faded away, after yesterday's readings from services sector. ISM for February increased up to the level of 56.9 points, despite that the economists' consensus expected a decrease down to 56.5. Additionally, index's components shown, that both weather and protests of harbour workers on West Coast, had no greater influence on the publication, despite that they have been remarked by the surveyed.

Before tomorrow's payrolls, one should pay a special attention to a very strong increase of employment sub-index. It reached a level of 56.4 points, whilst in January it was only 51.8. Component of prices has also visibly bounced off after January's decrease. As a result, instead of a reading that was supposed to take Federal Reserve further from starting the interest rates raise, we can say, that it got it closer to such decision.

ISM became a good catalyst for another enforcement of a dollar. After 16.00 CET, EUR/USD clearly dropped below the level of 1.1100, and achieved new 11-year minimums. The drop has been even more deepened, before the start of European session, and now we have to pay only 1.1050 USD per European currency.

EBC summit

The market has clearly “winded up” itself before today's EBC summit. In January Mario Draghi announced relatively clear plan of purchasing treasury bonds of particular countries from the eurozone. It is well-known what is the value of this program, what significant part of the debt can be purchased by central bank, and that the physical beginning of this operation is planned on March.

The investors however are wondering, will the purchasing begin already on Monday, or maybe at the end of the month. Additionally, they would like to know what kind of conditions should be fulfilled, in order to finish the program. However, it is worth noticing, that moving QE one week in one way or another, has a marginal influence on assets evaluation. It is also difficult to expect that Draghi will present the exact economy's parameters, by which quantitative easing will be finished.

Reviewed macroeconomic projections on the other hand, should cause a bigger influence. Economic growth for this year, will probably be updated upwards (from 1.0% estimated in December). It results from, amongst others, significantly lower prices of energetic resources, and lower evaluation of the euro. Both of these factors should improve the commercial balance and consumption.

Today's conference of Draghi should not be crucial, despite the fact that a part of the market is ready for significant changes. Of course we cannot exclude them, especially given that the euro weakened yesterday, after not significant information concerning the house's of settlements activity place. However in general, the balance of risks is neutral today, and the market should rather quickly focus on Friday's data from the American labour market.

Will SNB return to a stable rate?

According to Handelszeitung information, this is what the Swiss government would like. The newspaper has published the news, that it reached a secret document signed by the minister of finances, in which it is suggested, that SNB should “consider” to set anew the maximum rate of franc's exchange.

The representatives of Swiss monetary authorities did not want to comment this information. But in general it is a negative information for Swiss currency. It means that the central bank can find itself under additional pressure of wearing the currency off. Even if the maximum level of exchange will not be announced, SNB can be very eager for further decreases of money rates, or more aggressive interventions on the market.

Few words about the foreign market

Drop pressure on EUR/USD maintains, and at the moment there are no reasons for a greater correction on main currency pair. However we do not expect, that today's EBC conference would cause any dramatic increase of drops. Especially that the new macroeconomic projections, will probably be better than the previous ones. In the afternoon, the market will be focusing on tomorrow's payrolls. They can be another impulse for enforcing the dollar by the end of the week.

Double surprise. Zloty should clearly take advantage

Yesterday's decrease of interest rates by 50 basis points, down to 1.5%, was unexpected. Especially that the representatives of MPC, have rather suggested gradual changes in monetary policy. However most surprising, was the clear change of attitude. In the communicate, we can read that “the decision about decreasing the interest rates on current summit, means closing of the cycle of monetary policy's soothing”.

Right after publishing the communicate one could yet expect, that during the conferenc this information will be soothed. However, something different happened. Marek Belka clearly announced, that he does not see a place for any further decreases. MPC council chairman also claimed, that the space for decreases has been fulfilled, and he does not see any reasons to expect any other decreases. Additionally, one could get the impression, that the current Council would not like to make any decisions, before nominating the new monetary authorities in 2016.

Such strong statements assuming the maintenance of interest rates on an unchanged level, are quite a striking approach. Especially in the scenario of starting quantitative easing in Europe, and constant soothing the monetary policy around the world.

In general the tone of whole decision is positive for zloty. Assumption about constancy of interest rates, gives the wallet capital a “free hand”, to take advantage out of possibility to gain extra return rates on Polish market. It can take EUR/PLN in the areas of 4.00, already in the first half of this year.

Today on the other hand, the market should stabilise itself in the areas of 4.14 per euro, and 3.86-3.88 per franc. EBC summit should not have a visible effect on PLN records.

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

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