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Daily analysis 08.05.2014

8 May 2014 10:46|Marcin Lipka

Putin's statements decrease the tension in the region. Janet Yellen accordingly to expectations. Will ECB not change the parameters of monetary policy? Zloty took advantage of the sentiment improvement. MPC communicate and president Belka's press conference do not bring anything surprising.

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

  • 13.45 CET: Decision about money rates in Euro Zone is announced (survey: without changes on the level of 0.25%).
  • 14.30 CET: Press conference of ECB president, Mario Draghi.
  • 15.30 CET: Janet Yellen's speech before the Senate Committee on the Budget.

Putin, Yellen, Draghi

Few expected that Wednesday's afternoon on the markets will belong to the president of Russia. Yesterday Putin announced some elements, which, if they are realized, can allow for the awaited conflict's alleviation. First of all, he made an appeal to separatists that they need to postpone the referendum planned on May 11th. Second of all, he claimed that he will withdraw the armies from Russian-Ukrainian boarder. And third, and probably most important of all, he suggested that he will accept the result of presidential elections in Ukraine, if the interests of all citizens will be included. The authorities from Kiev referred sceptically towards Kremlin's guarantees and Petro Poroshenko, the leader of Ukrainian presidential elections' surveys, said that these are “very good news” that can “calm down the situation in the East”. The markets have also percive the signals from Moscow as positive which mainly strengthened the rouble (by almost one and a half per cent), forint and Turkish lira. Polish zloty also gained a little but because of its previous, mild weakening the weakening was smaller than on the other currencies in the region. IAR has published interesting information that may be related to the above mentioned news. It is believed that yesterday Putin greeted the Georgians on the upcoming Victory Day (May 9th), despite the fact that Russia did not have any diplomatic relations with Tbilisi for 6 years. Perhaps it was the celebration of World War II ending which was used as a good moment for decreasing the tense. How durable and true are these guarantees, we will find in the coming fortnight (before the elections in Ukraine).

Awaited by many market observers Janet Yellen's speech before the Congress did not change the situation on the pairs connected to the dollar. Federal Reserve chairwoman did not specify the date of first interest rates' increase. She still sees significant deposits of vacant employment resources (many people work in part-time jobs, low participation index) and claims that the inflation is not a threat and the economic growth should be faster than in 2013, despite the weak 1st quarter. The only surprise (dovish) was the statement about the risk of prolonging the real estate market's weakness (eventually the data really were not optimistic – author's note). In general, the appearance was close to the consensus.

Today we will finally know ECB decision about the further steps concerning the monetary policy. According to survey conducted by Reuters, only 2 out of 63 economists asked think that the bank will cut the money rates on May's summit but half of them expects a certain form of monetary policy's easing (cutting the interest rates or assets' purchase) can occur in the near future. Such market's approach can indicate that if we will not see any actions from Mario Draghi and his co-workers in the upcoming months, this “lack of actions” can be an element enforcing Euro.

In conclusion, if today ECB will not take any decisions about changes in monetary policy and Draghi will not add any new dovish statements during the conference, we can expect a test of limit 1.40 on EUR/USD.

Sentiments' improvement

Although yesterday around 16.00 CET three matters that could influence the zloty's condition have collided (Yellen's speech, Belka's conference and Putin's guarantees), the words of Russian president (more about it in the first part of the comment) were the ones to cause a clear strengthening of Polish currency and a slight fall below 4.19 per Euro. Yesterday's news from Moscow can also be one of the impulses (the second one is ECB), that will push the USD/PLN pair below 3.00.

Wednesday conference of MPC was very short and did not bring any new information concerning the national monetary policy. NBP president did refer, however, to the actions of ECB (as if he would doubt in the possibility of additional actions) and was surprised (just as the majority of the market) with the Eurp's strength.

In conclusion, today zloty has a chance to continue its slight strengthening (but we will rather not fall below 4.18 per Euro). But there is a big possibilityof testing 3.00 downwards per dollar and maintaining the limits 3.43 per franc (or even slightly below).

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

8 May 2014 10:46|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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