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Daily analysis 09.12.2014

9 Dec 2014 12:43|Marcin Lipka

A significant rebound on the EUR/USD. Lockhart cools down the expectations regarding sooner-than-expected interest rate hike in the US. Mexican central bank ready to support local currency. Russian monetary policy makers intervene on the market again. The zloty remains stable. Surprising comments from Bratkowski.

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

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

EUR/USD rebounded with support from Lockhart

Yesterday's daily analysis suggested that despite the solid data from the US the market reaction was overdone and comments pointing to an earlier than expected rate hike would not probably turn to be valid. The market recognized that issues, exploited the macrodata-free session and booked some profits both on the EUR/USD and USD/JPY.

During afternoon trading the correction was pushed further by fairly dovish statement from Dennis Lockhart. The Atlanta Federal Reserve president presented his estimates on US economy for 2015. The FOMC member claims that the GDP will grow around 3% y/y and the unemployment is supposed to drop to 5.25%-5.5% level. This data was pretty bullish for the dollar.

However, later he focused more on the inflation pointing out that during the last 2.5 years the PCE was significantly below the Fed's target. He was also concerned with slow wages growth which may still be an indication of underutilization of the labor force.

As a result, despite the fact that his presentation mentioned Friday's payrolls, Lockhart claims that he still supports first hike in the middle of 2015 or later. The Atlanta Fed is seen as being pretty close to the FOMC consensus and he will have voting power next year. It means that his opinion is pretty important and needs to be recognized on the market.

Additionally, during the conference with reporters (quotes from “WSJ”) he said that “I am not in a rush to drop the 'considerable time' phrase if it would in any way convey an imminent lift-off decision”

The last statement was really dovish, especially given that most traders has already scrapped the phrase. However, the market hasn't probably believed that the Fed may keep “considerable time” especially that they want to move from the calendar-depended policy to more data-depended. Nonetheless, his remarks were dollar-negative and we will have to wait till the next week FOMC meeting to see the return to stronger dollar.

Russian central bank intervenes. Mexian authorities want to curb volatility

Early morning the Russian Central Bank (CBR) published that it sold on Friday almost 2 billion USD worth of reserves to curb the rouble depreciation. It was the same day when Putin warned the speculators on “harsh measures” which may be faced by currency traders. However, both the real and verbal intervention brought only short-term relief. The rouble strengthened for two days by 4% but it gave back all the gains and tested record low levels today.

The key element for rouble valuation is the oil price. When Brent slides the CBR is not going to sell the reserves. The central bank is only keen to intervene when energy related commodities rebound or at least stabilize. In the long term, taking the situation on the crude oil into account, we should not expect the appreciation on the rouble stronger than 10%.

The currency problems are not only pushing down the rouble. The crude oil slump is also keeping pressure on CAD and NOK. Moreover, in the recent weeks there is also some tension on the Mexican peso. Despite the fact that the second largest Latin American economy is significantly dependent on oil, fewer investments in the sectors and lower export revenue may have negative consequences on GDP growth.

Additionally, Mexican currency is also depreciating. It pushed the central bank to start the intervention policy. The monetary policy makers will sell 200 million USD when the local currency drops more than 1.5% on the daily basis.

In a few sentences

Monday's Lockhart statement was an important short-term signal for the dollar pairs. The Atlanta Fed's chief clearly cooled down the sooner-rather-than-later interest rate hike expectations and give some doubts regarding the “considerable time” phrase. With the element of profit taking we may wait much longer to see a retest of 121 level on USD/JPY and 1.2300 on EUR/USD.

Stable zloty. Surprising comments from Bratkowski

An empty macroeconomic calendar didn't encourage more volatility on PLN pairs. Both the franc and euro were stable and only USD/PLN dropped around 1% due to a significant appreciation of EUR/USD. The only surprise came from Bratkowski statement.

The MPC member claims that the Committee acts “irrationally” keeping the interest rates to high. Bratkowski also sees that his comments were censored. Moreover, he does not want to take part in the discussion during the meeting and his views would be published on the separate blog-like website www.forward-looking.pl.

Summarizing, the Bratkowski statement didn't bring a significant reaction on the market, but it may further reduce the trust in MPC. Today the zloty pairs should be fairly stable and most transactions would be processed around 4.16 and 3.40 on euro and franc respectively.

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

Range EUR/USD 1.2250-1.2350 1.2150-1.2250 1.2350-1.2450
Range EUR/PLN 4.1600-4.2000 4.1600-4.2000 4.1600-4.2000
Range USD/PLN 3.4600-3.5000 3.4600-3.5000 3.4600-3.5000
Range CHF/PLN 3.4600-3.5000 3.4600-3.5000 3.4600-3.5000

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

Range GBP/USD 1.5650-1.5750 1.5550-1.5650 1.5750-1.6850
Range GBP/PLN 5.2500-5.2900 5.2300-5.2700 5.2700-5.3100

9 Dec 2014 12:43|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:

8 Dec 2014 17:06

Afternoon analysis 08.12.2014

8 Dec 2014 12:43

Daily analysis 08.12.2014

5 Dec 2014 17:15

Afternoon analysis 05.12.2014

5 Dec 2014 12:49

Daily analysis 05.12.2014

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