Daily analysis 10.07.2014

The EUR/USD is traded above 1.3600 after less hawkish than expected comments in the FOMC minutes. Weak data from Europe. Interesting Mario Draghi speech in London. The zloty is still in a relative narrow range. MPC comments – Osiatynski dovish and Rzonca hawkish.

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

• 13.00 CET: Bank of England decision on rates (unchanged at +0.5%).
• 14.30 CET: Weekly jobless claims from the US (survey 315k).
• 22.30 CET: FOMC vice chair Stanley Fischer statement.

”Minutes”. Draghi. Speech

On Wednesday the EUR/USD was pushed slightly higher due to less hawkish comments in the Federal Reserve minutes. Today, however, the move was stopped by really weak data from the French economy. The industrial production from the 2nd largest Euro area country dropped by 1.7% m/m (consensus was around 0.0%) and 3.7% y/y, which brought the index to the 2009 levels. In recent months we did see some improvement regarding the retail sales, but the incoming data show quite a substantial revision and it is possible that also the May's 2.1% y/y rise would be lower. If that was the case, we should assume that with negative traded balance we can see a contraction in the French economy in Q2 of 2014. Equally bad numbers we did have from Italy where the industrial production dropped more than 1% m/m whereas the market expectations were showing a slight gain.

Coming back to the yesterday's “minutes”, we have to point out that there are no clear signs that the Committee is getting more hawkish. There are hardly any indications which might suggest that interest rate rising can occur earlier than expected. In result, investors who had expected, that due to sliding unemployment and rising inflation we should see a broader discussion on tightening monetary policy are disappointing (we suggested such a scenario after Lacker's speech was less hawkish than expected). The only headline which was recognized by most of the market participant is the fact that Fed will end it QE program in October (which actually shouldn't be any surprise and we wrote it in December when the tapering operation started). The dollar finally weakened a bit but the move was relatively benign.

Leaving for a while the current issues, it is worth looking at Mario Draghi's speech in London. The ECB chief stressed the need to reform EU so the Union can increase its development and competitiveness. He is a clear supporter of restrictive spending policy (kind of opposite to Italian calls to loosen the rules) and broader integration (confronting the idea that UK may leave the block). Draghi also stressed the need to build the institution which may supervise the key changes as the International Monetary Fund does, claiming that it will make the regulatory work more efficient and should discipline each member. It will be interesting how each country can response to such initiative.

Today, it is worth taking a look at the BoE statement. Any suggestion that we may see an earlier monetary tightening should keep the pound rolling. On the other hand, some dovish comments might significantly depreciate the cable. Regarding the dollar we should remember about late evening Stanley Fischer speech. Recently nominated Fed's vice chair seem to be less dovish than Yellen or Dudley but if we get some hawkish comments from him (similar to Bullard's), it is possible that the dollar can take advantage of it and EUR/USD can finish the day below 1.3600.

In the range

The zloty gained some value after yesterday's “minutes” from the Fed, but the move was a minor one and was stopped at the beginning of the European session in line with weak data from France and Italy. The risk off sentiment pushed the EUR/PLN toward 4.14. Currently I would not expect that we should rise significantly above (4.12-4.14) range.

In recent hours we had two comments from the MPC members. The first came from professor Osiatynski (dovish but not as much as Chojna-Duch). The Committee participant in a Polish Press interview claims that the move on interest rates will depend on “deflationary expectations” and whether the zloty appreciate markedly. Osiatynski also points to GDP growth where a lower reading may constitute a cut. He is then another member who can give “yes” to a cut either in September or October.

The matter is viewed quite differently by Andrzej Rzońca, who does not rule out a rate hike in 2014. According to the MPC member the inflation drop is transitory (food and energy) which is beyond control of monetary policy. Moreover, if we see a stronger growth (above 3.5%), he would like to see a “normalization of the policy”.

Summarizing, due to worsening the global sentiment we may be traded in the higher range of 4.12-4.14 on the EUR/PLN. Until the end of the week the situation should not worsen much and both Euro and Swiss franc should remain at the current level.

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

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