Daily analysis 06.02.2015

The EUR/USD has returned to 1.1450 before the important data from the US economy. Fourth time in less than a month Denmark cuts the interest rates. European leaders are scheduled to visit Putin in Moscow. The EUR/PLN remains fairly stable after dovish MPC conference on Wednesday.

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

• 14.30 CET: Data from the US job market (survey: Non-farm payrolls at 230k; unemployment rate: 5.6%; average hourly earnings 1.9% y/y; month to month +0.3%).

A return towards mid-1.14 before “NFP”

The EUR/USD has returned to the levels before the ECB announcement to halt the direct liquidity operations for Greek banks. Currently, the main catalyst should be readings from the US economy. They are crucially important in the wake of the interest rate hikes. If the data from across the pond is solid, the probability of the first hike in mid-year increases and we should see the stronger dollar. On the other hand, in a scenario of weaker numbers it may push the FED to keep the zero-rate-policy for longer and initiate a stronger correction on the EUR/USD.

Investors are supposed to watch two main figures – the payrolls and the wage increases. The median expectations from economists surveyed by Bloomberg is around 230k. We should expect that readings above 250k may be USD positive while a slide below 200k can be an argument to sell the dollar and push the EUR/USD toward 1.1500.

In a scenario of fairly muted “NFP”, the market participants instantly focus on the wages. In the previous month we had a surprising decrease in weakly earnings and now investors expect at least the comeback toward the average growth around 1.9% y/y). Higher wages are positive signals for the dollar, but a significant reaction should be expected only when the deviation exceeds 0.2% or more.

4th cut in the row

We are getting used to surprises from the financial markets but there are still examples which gather more attention. Danish Central Bank fourth time in less than a month cut interest rates. Currently, Copenhagen charges 0.75% annually on deposits and matched the rate of SNB.

According to the statement published on the central bank's website the move is caused by strong capital inflow to Denmark after the SNB decided to quit its peg with the euro. Danmarks Nationalbank also reminded that it sold 106 billion DKK to keep the krone fixed to the euro.

What is even more interesting, to stop the capital inflow, ministry of finance decided to halt all debt issuance both in the local and foreign currency. Usually such measures are announced when there is a risk with capital outflow. This time the situation is opposite.

All the presented measures aim to keep speculators out of assets denominated in DKK. The short-term capital is eager to mirror situation happened in Switzerland and push the currency much higher. It may be really hard especially that the Danish central bank has kept the peg for 30 years (previously to the DM).

An attempt to calm situation in Eastern Ukraine

The Ukrainian conflict which broaden significantly recently and taking a toll on more and more casualties caused the EU leaders to take more decisive action. Both German and French leader visited Kiev yesterday and today they are scheduled to meet with Putin in Moscow. The Hollande and Merkel strategy assumes to push for a case fire and return all sides to the Minsk agreement. There are, however, speculations that Putin wants a broader territory - upgraded with most recent gains by the separatists.

But most of the reports seem to be rumour. The overall attitude before the Moscow meeting seem to be pretty sceptic and odds for some kind of agreement look to be low. Probably no certain resolution is expected to be agreed. As a result it will fail to help both the hryvnia and the rouble.

Foreign market in a few sentences

The odds for EUR/USD correction are pretty high but if really solid data (NFP +250 + upward revisions + higher wages) hit the wires the European currency will probably fail to generate a rebound in the following days. However, taking into the account that the reading fails to be really bullish we should see higher levels on the EUR/USD. In case of “payrolls” sliding below 200k we should not exclude the rise above 1.1550 today.

Stable zloty pushes for more appreciation

Despite a fairly dovish governor Belka conference and the new significant turmoil on the hryvnia, the zloty remains pretty stable and additionally seems to be eager to continue appreciation. A strong position of the local currency is mainly a result of expectations that QE fuel capital will be brought to Poland.

A demand for assets with a positive yield is also visible on the forint which gained around 3% in a last month and the Hungarian currency is approaching the highest levels in almost a year. The zloty rose around 2% to the euro in the same time but it is only 2 zloty-cents above 4.15 – six months lows.

The incoming days should show whether the portfolio capital accepts a deeper interest rate cut. If that happens the EUR/PLN should approach 4.10 fairly quickly. In case of CHF/PLN it should mean moving the base case scenario toward 3.90 with increasing odds for sliding further.

It is also worth to look at the petrol market. The significant rebound on the oil results that wholesale prices of PB 95 rose to 4.25 (including vat) whereas in mid January it was only 4.00 PLN. As a result we should expect that at cheapest pumps the price will be around 4.35-4.40 while the average is going to be moved toward 4.50. It is the last moment to fill the tank before a significant price hike.

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

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