Daily analysis 10.03.2014

Constant highs on EUR/USD, despite the data from American labour market, that appeared to be better than expectated. Limited downward potential for Russian rouble. NBP report sends optimistic signals for Polish economy.s

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

• No macro data that could significantly influence analysed currencies.

Data from USA. Rouble's form

The market has awaited the data from American labor market for many days. Few weaker readings from the other side of the ocean and barely optimistic ADP report (+139k of new working places in private sector), both caused that payrolls' estimations in limits of 150k seemed optimistic. NFP surprised again though, and current publication exceeded economists' indications, resulting in 175k. Additionally, the U.S. Department of Labor revised the data for previous two months upwards, which showed 25 thousand new jobs. So in general the reading should support the dollar (and so it did, but the movement was quite small), because it actually decreases the probability of Federal Reserve summit in March stopping the QE exiting to zero. Some even claim that it brings Fed closer to acceleration of this process. However, this second version of events is also unlikely as even the hawkish part of FOMC is not willing to clearly support such movement.

I have been writing a lot about Russian economy lately. It is hard to speak optimistically about the “opponent” in present time being. However, there are some facts worth paying attention to which cause the rouble to have very little reasons for further weakening. Furthermore, Kremlin's financial situation may be the envy of a lot of countries. GDP debt in Russia does not exceed 10%, and in years 2014-2016 its budget deficit should close in the division minus 1% GDP. Thanks to local currency's weakening, this year's budget can even be balanced. That is probably the main reason why the central bank did not intervene (lower pricing of RUB causes the nation income from exporting raw materials denominated in USD to be more valueable in local currency) on the market more decisively (except for previous Monday, when over 10 billion dollars were sold to defend rouble's rate). However, the currency reserves are constantly on the level close to 500 billion dollars which means that they can quench import for one and a half year (in Poland it is a bit over 6 months and in Ukraine - 2 months). Russia still has a surplus on its current account. And even though it decreased last year from over 3% to 1.5% GDP, this descend is not a result of weakening of demand for Russian raw materials, but rather bigger expenses of Russians for imported goods or travels (12 billion USD in comparison to year 2012). The main and actually the only real threat for the rouble in short term is the withdrawal of capital from Russia. If the crisis between West, Moscow and Kiev will go further, the pressure on rouble can really grow. In case of sentiment's improvement in the region, investors will gradually come back to this market. Then the rouble will have a chance to make up for the losses without any help from the central bank.

In conclusion, data from the American labor market should stop the further dollar fall on the currency market. The appreciation of Euro, along with Draghi's hawkish approach to monetary policy, should also slowly lose its momentum. That is why it is so hard to find arguments for continuation of EUR/USD increases clearly above 1.40 at the moment (this level has chances to be tested, mainly because of strictly market reasons). There is a bigger probability that in the following weeks we will deal with a stronger dollar with Euro keeping similar level. It will mean slight fall of EUR/USD.

Optimistic projections of Polish economy

At the beginning it is worth getting back to Friday's session, when zloty lost a bit on its value in relation to Euro, despite that the general market conditions were rather in its favour. This can be connected mainly with the matters on Russia – West line and anxiety of leaving open positions for the weekend. Other currencies that were directly interested in region's situation – Hungarian forint, Turkish lira or Russian rouble – behaved exactly the same. However, if the conflict escalation will not occur, the probability of EUR/PLN going above the level of 4.20 is relatively small.

Details of NBP economic forecasts were published today (we already received some partial data during MPC on Wednesday). All of its components look actually more optimistic than they did in November. Apart from clear economic increase (3.6% in 2014 and 3.7% in 2015), we can also observe significant unemployment decrease (to 9.0% in 2015 and 8.4% in 2016 from current 10.3%), decisively stronger salaries' increase and inflation keeping the low level (it will not exceed MPC goal resulting in 2.5%, until 2016) at the same time. According to NBP, the investments should noticeably accelerate this year (+5.7%) and the trade exchange (import slightly faster than export) should grow by about 8% until projection's end.

In conclusion, if no other disturbing news from the eastern boarder will hit the market, zloty's quotations should shape below the limit of 4.20 on EUR/PLN and 3.45 on CHF/PLN. In case of disturbing news' appearance (especially military, which is very unlikely at the moment), we will have to expect PLN weakening by PLN 0.02-0.03. If the situation will calm down, in mid-terms we should return to the areas of 4.15 on EUR/PLN. However, the longer the discussions about avoiding conflict's escalation last, the slower this mentioned return can be (part of the capital, both short term and investment, can approach the region with lack of trust for a longer time).

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

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