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Daily analysis 09.05.2014

9 May 2014 12:03|Marcin Lipka

ECB announces “actions” on their summit in June. After Draghi's statement EUR/USD looses almost 150 pips. Zloty remains near the limit of 4.1800 in relation to Euro.

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

  • No major macro news that can affect the analyzed pairs.

Draghi is ready

Yesterday's events with ECB participation can be divided into three parts. First of them is a decision about leaving the interest rates on the unchanged level, published at 13.45 CET (it was expected but it slightly strengthened EUR/USD nevertheless – to the limits of 1.3950). After 45 minutes Mario Draghi's conference had begun. During the reading of the communicate itself (in which there was nothing new), Euro kept on strengthening, just to reach the level of only a few pips below the limit of 1.40 at the beginning of Q&A part. However, the situation has changed diametrically when, while answering on one of the questions, Draghi started suggesting that the Board of Directors is more and more unsatisfied with the path of inflation, which begins to stray from the goal set in March. ECB president emphasized that today's discussion was an introduction to June's actions, if the upcoming macroeconomic estimations (also published in June) confirm the Board of Directors' predictions. That was the element which immediately began to lay weight on the common currency and was the catalyst of EUR/USD fall by 150 pips.

Further analysis of ECB chief attitude leaves an impression that the decision about monetary policy easing (when it comes to negative interest rates or assets purchase from the market or liquidity operations) is actually already made and the Bank only needs to confirm its speculations (based of course on currently pouring in data) with June's update of macroeconomic projections. On the other hand, it is also worth remembering about how Draghi can cleverly create the expectations of the market which on the base of his suggestions can regulate automatically (if Euro significantly lost on its value during the upcoming weeks – another 200/330 pips – the problem of too high evaluation of European currency would stop decreasing the inflation so that the main element that pulls the prices down loses its meaning). Such speculations will accompany us probably until the next ECB summit. The market's participants will keep on observing the data pouring in from the common economic area, especially the final inflation readings for April and initial for May.

In conclusion, yesterday's signal of EUR/USD weakening should continue also today with a big probability of fall below the limit of 1.38. However, in the upcoming days the sentiments should calm down and we should remain in the areas of current levels until receiving further impulses.

Zloty stable towards Euro

Despite all the fuss on the global market, Polish currency was relatively stable in relation to its foreign equivalents. We had some slight falls on EUR/PLN pair, what is a natural effect of suggestions of monetary policy easing in the Euro Zone (a clear continuation of this movement is still not settled, even if ECB comes to actions because MPC seeing Draghi's more adjustive approach can delay its increases calendar). Things on USD/PLN were more interesting – after a momentary fall below 3.00 for another time this year, we have taken off from this round limit.

Generally, we can claim that during recent days the perspectives for zloty had improved a little (Putin's declarations and Draghi's announcements). So there is quite a big chance that during the upcoming days the range of Euro-zloty’s fluctuations will move to the lower areas of 4.15-4.20 division, and franc's cost will be in limits of 3.40-3.43. Due to more dovish approach of ECB and reduction of EUR/USD price, we have little chances to test the limit of 3.00 per dollar again.

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

9 May 2014 12:03|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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