Daily analysis 07.07.2014

Slightly below 1.3600 on the EUR/USD. Minutes and the FOMC speeches are key for the dollar this week. Weak production data from Germany. Belka, Glapiński and Chojna-Duch on rates. Full macro projections from the NBP.

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

• No macro data, which may significantly affect the analyzed pairs.

Calm. Production. Fed

The EUR/USD has been traded since early morning marginally below 1.3600 level. We had a pretty disappointing data from European largest economy but there is no visible selling pressure on the shared currency.

The German industrial production fell in May 1.8% (m/m seasonally adjusted; Bloomberg consensus showed no change) which was a third in a row negative reading (after a revision for April). With other worse-than-expected indicators from Berlin (retail sales or survey-based ZEW or IFO) we can assume that there is a slowdown in the German economy. It is hard to establish whether if it's caused by strictly economic issues or for example due to pretty benign winter that the expectations were too high and we have now some offsetting of overly optimistic calls (kind of opposite situation than in the US). It is also worth noticing that the current readings may push the GDP lower and the growth around 0.8% q/q will be impossible to achieve.

This week there is a few macro data in the calendar and investors will likely focus on the Fed's minutes from the June's Federal Reserve meeting and incoming FOMC speeches. In Committee protocol the market will try to find any data regarding the moment when the central bank plans to rise interest rates. Hawks, however, may be a bit disappointed because the discussion was just after the CPI was published (cut-off date was earlier) and the PCE prices were not known at that moment. Additionally members also didn't have any knowledge about job's data for June and if we return to the last statement and conference, they were both pretty dovish (some concerns about housing market and Yellen dismissed inflation concern).

We should get more hints from incoming speeches. On Tuesday Jeffery Lacker (Fed's Richmond president, hawk, non-voting) and Narayana Kocherlakota (Minneapolis Fed's President, ultra-dovish, voting) are scheduled to talk. For investors the latter will be much more important as they will try to get any hints if he is recognizing some positive changes in the economy and whether if they may bring him closer to the monetary tightening.

Today's session should be pretty calm and most trades will be probably made just slightly below 1.3600 level.

Calm trading

The recent hours on the zloty seem to be very calm. The EUR/PLN is a bit below 4.15 level while CHF/PLN is hovering slightly above 3.40 mark.

The lazy traded on the zloty was also not energized by some 3 MPC statements. Governor Belka confirmed his stance from last conference and told Polish daily paper “Dziennik Gazeta Prawna” that he is not keen to make any changes in the monetary policy. Slightly more hawkish were Adam Glapiński remarks who told Bloomberg that we would see the rates at the current level until the end of 2015. In June he told PAP that we may see a cut in the beginning of 2015 due to some economic weakness.

Elżbieta Chojna-Duch confirmed her dovish stance and told PAP that "the MPC should cut the rates. She claims that the recent NBP economic projections justify such a move. They speak for themselves”. Taking into the account all available comments from the MPC members, Chojna-Duch is the only rate setter who would like to lose monetary policy. In result the chances for a cut are pretty slim in the following months (September, October). Only a significant growth weakness (markedly below 3%) may push the other members to consider a benchmark decrease.

Polish central bank published today a full macroeconomic projections for the incoming quarters. A main changes which bring our attention are a significant inflation reduction for 2014 (currently at 0.2% y/y whereas in March estimates it was 1.1%). The future CPI is under pressure mainly due to food deflation (previously it was supposed to rise by 2.2% and currently an 0.5% fall is expected). In result the core inflation correction wasn't that significant what was probably a main reason why most MPC members are not really keen to cut interest rates. Regarding the GDP the estimates are close to the previous forecasts and should stay around 3.5% till the end of 2016.

Summarizing, the zloty should be pretty stable today. No macroeconomic data (both domestic and from abroad) and a clear MPC stance of the future monetary policy should keep the zloty close to the current levels.

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

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