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Daily analysis 05.11.2013

5 Nov 2013 13:12|Marcin Lipka

A short-term stablization on EUR/USD around 1.3500. The main topic for discussion is still the Thursday EBC meeting. Italian Minister of Finance about too stron euro. Fed's Bullard less dovish. The zloty remains stable at 4.18 for the European currency.

Macro data (CET- Central European Time).

  • The most important makro data (CET- Central European Time). Survey is supplied by Bloomberg unless otherwise noted.
  • 16.00 CET: Services ISM from USA (survey: 57 ponts).

Reassurance. EBC. 'Too stron euro'. Fed

On Monday the main pair became stabilized at 1.3500. However, it is most probably "the calm before another storm", since before us there are the very important EBC meeting (Thursday) and October's payrolls on Friday. Today the news of the day is going to be Services ISM from USA (analogous index to European PMI. It is, however, less influencial on the markets that its industrial 'colleague').

On the market there is still a very intensified discussion on the possible European Central Bank possible reaction to very low inflation reports. According to Bloomberg, currently three banks foresee interest rate cuts at the nearest EBC meeting: these are the Bank of America, the Royal Bank of Scotland and the UBS. Other institutions questioned by Bloomberg (65 out of 68) state that Mario Draghi and his colleagues will leave the interest rates at the same level as before. It is also improbable that EBC carries out another LTRO or another similar operation which would power the banks. The Central Bank under Draghi's direction is a rather conservative institution and after one inflation report it seems unlikely that it would take a hasty decision. Additionally, the hawkish wing (the representatives of Germany, Austria, Finland, and Holland) of the Bank is not too keen to maintain - and sees no point in - further cuts, what was highlighted by Ewald Nowotny, the Austrian EBC management member. It is more probable that the liquidity operation is signaled along the lines of LTRO, however, it is still not decided whether this happens at the nearest meeting. Yesterday in the evening the Financial Times has published an interview with the Italian Minister of Finance, Fabrizio Saccomanni. Saccomanni warns about too strong euro and thinks it might harm the European recovery. It is not a statement of high firepower (what's more, it is a little late -over the last couple of days EUR/USD went down over 2%), but in case of the nervous moods befire the EBC meeting, it may cause the downward pressure towards the common currency.

It is also worth paying attention to the statement issued by James Bullard (this year's voting member of FOMC, dovish). Bullad, cited in the Wall Street Journal, says that the December deadline for the quantitative easing is still possible and the Comitee members still have labor market reports to go before the decision is made. It cannot be ruled out, then, that one of the Fed's big doves will vote for decreasing QE as soon as in December (when the labor market data will be better).

No emotions on the zloty

Both euro and the Swiss franc move in a small range of variation - respectively 4.18 and 3.40. Yesterday the domestic currency strengthened marginally after strong PMI reports (esepcially after highlighting the export's strength by Markeit and HSBC), which may result in better reports from current account balance in quarters to come (what nowadays is monitored carefully by the institutional investors who invest capital in emerging markets).

Days to come should also be calm for the domestic currency. The Montary Policy Council meeting which starts today should bring no surprises. The inflation projection and the economic growth published by the Polish National Bank, on the other hand, should be interesting (especially few days after the Council's annoucement). I expect Marek Belka and his associates to prolong the forward guidance at least until the end of 2014 Q1, and it cannot be ruled out that they will sugest the interest rates stay it the same level until mid-2014 (in particular since there is a consensus amount the members of the Council about the Monetary Policy - I wrote about that more in October's summary).

Summing up, the base scenario for the euro and the franc is to stay at the current levels with fluctuation range at PLN 0.01.

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

Range EUR/USD 1.3450-1.3550 1.3550-1.3650 1.3350-1.3450
Range EUR/PLN 4.1600-4.2000 4.1600-4.2000 4.1600-4.2000
Range USD/PLN 3.0800-3.1200 3.0500-3.0900 3.1100-3.1500
Range CHF/PLN 3.3800-3.4200 3.3800-3.4200 3.3800-3.4200

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

Range GBP/USD 1.5950-1.6050 1.6050-1.6150 1.5850-1.5950
Range GBP/PLN 4.9100-4.9500 4.9300-4.9700 4.8900-4.9300

5 Nov 2013 13:12|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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