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Daily analysis 07.05.2014

7 May 2014 10:34|Marcin Lipka

A clear American dollar's weakening along with the Spanish and British data supported EUR/USD and GBP/USD. Appearance of Fed chairwoman in Congress. Zloty slightly gains after Russian rouble's enforcement.

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

  • 16.00 CET: Janet Yellen speech before the Congress' Economic Committee (tomorrow before the Senate's Committee for Budget).
  • 16.00 CET: conference after MPC summit.

A good excuse. Yellen.

Dollar's unusual aversion to further enforcement after last week's data from the American labor market found its vent in yesterday's "greenback” weakening in relation to majority of currencies. In case of EUR/USD pair a good moment to take advantage of the situation was the publication of PMI services indexes (we received initial data from April for Germany, France and the whole Euro Zone less than two weeks ago and yesterday the indexes from Spain and Italy were revealed). Usually the data from services sector draw less attention than the industrial ones and even the fact of really good readings from Iberian Peninsula does not take off the main currency pair by several dozen pips in an important moment for this instrument (records' nearness). Additionally, what is worth emphasizing, the group readings from Euro Zone were consistent with the earlier estimations, thus the condition of whole common market can be considered as unvaried.

Even better confirmation of dollar's unused chances last week was the behavior of GBP/USD. The pound started strengthening in relation to “grenback” before the publication of services PMI from British Isles. Although the data was really good (58.7 points, according to Markit economists' chief, Chris Williamson, they indicate at least 0.8% of GDP growth in second quarter), it has actually only sustained the movement started in the morning. So to continue the “cable's” appreciation, we will still need dollar's weakness and further optimistic informations from UK that will take Bank of England closer towards faster, than expected by the market (I/II quarter of 2015), increase of money rates.

On Monday I wrote about quite dovish statements of FOMC hawkish camp representative (in his interview for Fox Business, Fisher stated that he does not see any reasons for accelerating the exiting from QE and he finds the discussion about raising money rates premature). Today's speech of Janet Yellen in front of the Congress can be considered as a certain development of these statements. If Fed's chairwoman will keep on saying that the labour market is weak (despite some good data previously), inflation will remain below the goal and the decisions about tightening the monetary policy will depend from the condition of the economy, then we can expect the maintenance of American dollar's weakness and remaining above the level of 1.39 on EUR/USD.

Lack of USD appreciation after Friday's data from the labor market has been used well by the bulls on the main currency pair. If Yellen (today) and Draghi (tomorrow) will not surprise us, then we have big chances for a clear take off above the limit of 1.40 on EUR/USD.

A slight improvement of sentiment

On Tuesday zloty had minimally enforced itself in relation to Euro and we descended slightly below the limit of 4.20. It was mainly caused by a slight enforcement of the rouble (which lately is describing the sentiment in the region very accurately) and dollar's weakness. The "greenback's” value descends are of course better observed on USD/PLN, where we are testing the limit of 3.00 once again this year.

Today's event on the national currency's market will be Marek Belka's press conference after MPC summit. It is difficult to expect any crucial comments from NBP president but if any suggestions are mentioned, they would be rather about the increase of period of keeping money rates on unvaried level than about its decrease.

In conclusion, in the hours to come zloty should remain stable and deflect by no more than 0.01 PLN in relation to Euro, as well as franc. We will rather not see a break of 3.00 downwards on the dollar. However, the probability of such movement until the end of the week is relatively high.

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

Range EUR/USD 1.3750-1.3850 1.3850-1.3950 1.3650-1.3750
Range EUR/PLN 4.1800-4.2200 4.1800-4.2200 4.1800-4.2200
Range USD/PLN 3.0300-3.0700 3.0100-3.0500 3.0600-3.0800
Range CHF/PLN 3.4200-3.4600 3.4200-3.4600 3.4200-3.4600

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

Range GBP/USD 1.6850-1.6950 1.6950-1.7050 1.6750-1.6850
Range GBP/PLN 5.0700-5.1100 5.0900-5.1300 5.0500-5.0900

7 May 2014 10:34|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.

See also:

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