Daily analysis 06.03.2015

Consequences of EBC summit – more optimistic macro prognoses, but the monetary policy will be still sharply eased. Readings from the American labour market this afternoon. EUR/PLN falls below 4.13, and CHF/PLN goes down to 3.85.

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: MPC decision concerning interest rates (estimations: decrease by 25 basis points).
• 14.30 CET: Data from the American labour market (estimations: new work places in non-agricultural sector +235 thousand: average hourly wage +2.2% y/y and +0.2% m/m; unemployment rate 5.6%). Attention! It is not excluded that due to the difficult weather conditions in Washington, the publication will be slightly delayed.

Draghi is optimistic, but euro keeps on falling

Quite big, and rather unjustified nervousness built before EBC summit, converted to strong movements on EUR/USD, during Mario Draghi's press conference. In the communicate itself, we received many optimistic information. European monetary authorities reviewed the economic increase for 2015 by half percent, up to 1.5% y/y. The situation looks even better, when it comes to upcoming years. Especially for 2017, when the development is supposed to amount +2.1%.

Perspective of inflation also has improved, if we will exclude the upcoming quarters, in which the prices of fuels and food decrease the whole growth of prices. CPI will increase to 1.5% already in 2016, and in 2017 it will amount +1.8%, which actually means reaching the bank target. Additionally, the communicate itself was much more optimistic than in the previous months, and Draghi claimed that one can already see the positive aspects of announced assets' purchase, despite the fact that it actually has not even started.

The above information pushed EUR/USD above 1.1100. Later however, when the session of “questions and answers” have started, we quickly corrected the previous increases. The market reacted quite nervously on the information about the possibility of extending QE beyond September 2016, if it would be required. The sell of euro started to deepen, after the chairman claimed that EBC can also buy treasury bonds with negative profitability, and its minimum level will be the deposit rate (currently minus 0.2%).

However it is worth to remind, that we have found out about the possibility of extending QE if needed, already on January's press conference. Also one and a half month ago, there was a question about purchasing treasury instruments with negative profitability, on which Draghi answered positively. One new thing was announcing the moment of assets' purchase beginning. It will start on 9th of March.

It will not be an abuse if I will write, that the market significantly overreacted when it comes to going upwards, as well as the later fall. There was nothing in Draghi's conference, that could not be foreseen earlier. It was anyway confirmed by evaluation of EUR/USD, which was observed by the end of the day. Main currency pair was only 10 pips below the level from before announcing the decision about money rates.

Payrolls

Today, the market is preparing for the data from the American labour market. The economists probably had some problems to estimate, how many new jobs was added by the economy on the other side of the ocean. It was because that the incoming information were unclear. And so, the employment component from industrial ISM went down, but it increased when it comes to services. Recently the weekly unemployment benefits are quite high, but ADP report was rather neutral.

To it all adds the severe winter on East Coast, and the protest of shipyard workers on West Coast. This can cause, that today's reading will be burdened with a big margin of error.

As a result, the market's approach can be as follows. Even small crossing of the prognoses, e.g. publication above 250 thousand, should give another appreciation impulse on USD. On the other hand, a weaker reading should not cause a visible wear off, because finding “explanations” for momentary deterioration of labour market's condition will not be difficult. Only a clear going below the level of 200 thousand should visibly wear “the buck” off, and cause its increase above the level of 1.1000.

One can also not forget about the second important figure – increase of salaries. Every publication above +2.2% y/y and +0.2% m/m, is a positive signal for USD. On the other hand, the return below 2% y/y is a reason to generate working off on main currency pair.

Few words about foreign market

Considering the fact, that the trends on labour market are strong, one should rather assume a better publication, than it is indicated by consensus. On the other hand, the disturbances related with weather, or the protests in shipyards on West Coast, can change the reading in such way, that we will receive a weaker indication. Thus the market can sacrifice a lot of attention to increase of salaries. If it will be better than the consensus, we can observe further appreciation of USD, even by weaker payrolls.

Euro and Franc are becoming cheaper

Euro which is wearing off on international markets, and a clear suggestion from MPC about lack of chances for further interest rates decreases, causes a visible enforcement of zloty in relation to common currency. This trend should maintain, and if there will be no disturbing information from the wide market, we should probably see an acceleration of the above tendency in a certain moment, and EUR/PLN may test the level of 4.10.

It is also worth to take a look at franc. Despite the decrease of EUR/USD, EUR/CHF pair is not losing its value, and maintains above 1.0700. With zloty enforcing in relation to euro, the rate of CHF/PLN dropped down to 3.85. There is a big chance, that the above rights will maintain. Thus it is not excluded, that we may soon observe franc in the areas of 3.80.

When it comes for today's publication from the American Labour Department, we should not see a visible reaction on euro or franc, in relation to euro. On the other hand, the dollar can again gain on its value, although it will probably not cross 3.80.

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

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