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Daily analysis 10.02.2014

10 Feb 2014 11:30|Marcin Lipka

The US soft data keeps the dollar under pressure and pushes the EUR/USD higher. German Constitutional Court sends the OMT case to European Justice Tribunal. Yellen hearing before the House Financial Servicing Committee. The zloty stabilizes around 4.18 per the euro.

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

  • No major data which will affect the analyzed currency pairs.

Payrolls. Kalrsruhe. Yellen

The US data published on Friday afternoon were both optimal for the EUR/USD bulls and equity market participants. The headline reading was quite low – 113k vs 180k expected. However, if we look at the jobs report more closely, we can conclude that there were some positive findings. Firstly, the previous NFPs were revised upward by 34k (1k in December and 33k in November). A bullish message was also a 2013 revision. The BLS reported that last year the economy created 2.322 million jobs while the earlier estimation was at 2.186 million. In result, the NFP monthly average for 2013 rose to 193k from 182k. Another positive element is the unemployment drop to 6.6% in line with rising participation rate. Summarizing, on one side the payrolls data was bad enough to keep the slow pace of asset purchase reduction in place and, on the other side, the BLS report is good enough to keep the impression that the economy is improving (kind of win-win situation).

There was a small market turmoil on Friday morning regarding the so-called OMT program (ECB introduced a bond buying operation to help lower the yields on peripheral debt. Actually, the program has not been used because the yields dorpped). The German Constitutional Court decided to send the case to the European Court of Justice. The Karlsruhe judges were not able to rule whether the OMT broke the ECB rules not to finance the sovereign, or the Program was in line with the central bank mandate. As the “Financial Times” reports, the ECJ will spend at least several months after the ruling is announced. It means that the case should bring less and less attention, and no reaction from the markets is expected.

Regarding the incoming hours, it is worth to pay attention to Janet Yellen hearing. The new Fed's chief will testify before the House Financial Services Committee (at 16.00 CET on Tuesday). An hour and 30 minutes earlier (14.30 CET) her statement will be released to the public. Investors will probably focus on two issues. Firstly, the big question is whether the new Fed's chair is concerned with lower-than-expected payrolls numbers and secondly, how is she going to modify the forward guidance. Any dovish remarks should push the dollar lower and more hawkish ones (blaming the weather or dismissing the significance of the recent NFP) should strengthen the greenback.

Summarizing, the EUR/USD does still seem to be upwardly biased. However, to keep the trend in place, the most traded currency pair needs another impulse (Yellen dovishness?). Until tomorrow afternoon the base case scenario is a range trade around 1.36 level.

PLN correction

As the “Financial Times” reports, the zloty was the strongest EM currency last week. It gained 2.6 percent to the dollar. The PLN was supported by a relative calmness in developing economies, risings equities and strong EUR/USD. Today, however, we are observing a slight correction (around 0.3%). Much stronger slide is recorded on the Hungarian forint which has depreciated to the dollar around 1% since the beginning of Monday's session (confirms a relative HUF weakness vs PLN). During the incoming week the key data will be published on Wednesday (current account) and on Friday (GDP and inflation). Also on Friday (according to the PAP newswire) Fitch is scheduled to publish Polish sovereign rating. The Agency upgraded the Polish perspective to positive last year, but after 6 months it downgraded it to stable. In result, there is a small chance that it upgrades the rating again in such a short period of time. Fitch would rather like to wait to see more evidence that the economic rebound is more sustainable and the government debt is under a strict control.

Summarizing the zloty can be a bit softer today, but the depreciation will not be significant. We should be moving around 4.18 plus/minus 0.01 PLN per the euro.

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

Range EUR/USD 1.3550-1.3650 1.3650-1.3750 1.3450-1.3550
Range EUR/PLN 4.1800-4.2200 4.1800-4.2200 4.1800-4.2200
Range USD/PLN 3.0700-3.1100 3.0500-3.0900 3.1000-3.1400
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 1.6350-1.6450 1.6450-1.6550 1.6250-1.6350
Range GBP/PLN 5.0700-5.1100 5.0900-5.1300 5.0500-5.0900

10 Feb 2014 11:30|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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