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Daily analysis 11.04.2016

11 Apr 2016 13:32|Marcin Lipka

The evaluation of the EUR/USD should still be determined by a discussion regarding the intervention on the yen, as well as signals from the oil market and the pound. The zloty is working-off its losses, despite dovish comments from the Monetary Policy Council representatives.

Most important macro data (CET – Central European Time). Estimations of macro data are based on Bloomberg information, unless marked otherwise.

  • No macro data which could significantly impact the analyzed currency pairs.

Yen, oil and pound

Currency market investors continue to observe and evaluate the yen and the pound, the situation in the oil market, and the general market sentiment which is determined by the situation on the American stock market.

Yesterday's interview with Yoshihide Suga for Reuters, is significant regarding the Japanese currency. The chairman of the prime minister's cabinet told the information agency that, “the Bank of Japan and the government are carefully observing the currency market, and are prepared to undertake proper steps if necessary.”

Suga also referred to the recent interview with the Prime Minister Shinzo Abe for the Wall Street Journal. One week ago, Abe told the journal that countries should avoid “arbitrary intervention” in the currency market. This statement was intended to discourage countries from decreasing evaluation of currencies, in order to gain advantage in the foreign trade.

However, some observers understood the above statement as reluctance to conduct interventions, even if the yen is significantly strengthened. This happened because the question was regarding the recent appreciation of the JPY. Currently, Suga said that the prime minister, “was misunderstood and does not exclude an intervention, if the market continues to go in one direction.”

For the time being, however, intervention has not been conducted. According to economists who were surveyed by the Bloomberg agency, it is possible that it will not happen unless the USD/JPY pair goes below the level of 105. Further appreciation of the yen against the dollar will also wear-off the American currency globally. This is caused by the relatively high evaluation of the EUR/USD, among others. On the other hand, if the BoJ begins to intervene, we could expect a clearer appreciation of the USD to the euro.

The pound is working-off its depreciation against the euro, and the EUR/GBP returned to the area of 0.80. This is one of the reasons for a slight decrease in the EUR/USD below the limit of 1.1400. However, the signal from the British currency is still not sufficient enough to cause a bigger move on the main currency pair.

Today's session shows a clear withholding of the past week's appreciation of oil. It kept the dollar's quotations under pressure due to a flow of the capital from the buck to the currencies of countries which export raw materials.

Also, the market is beginning to discuss the issues of the Sunday meeting of the oil producers in Doha more seriously. We received two new pieces of information today. Again, their messages were contradictory. Iraq announced that production in March was 4.55 million barrels per day. This was the highest value in its history. The message suggests that the chances for keeping the production at the level from January (in order to limit the oversupply) by the OPEC and Russia are decreasing.

On the other hand, representatives of Venezuela claim that the basic goal of the meeting in Doha was to establish the limit of production. Due to the fact that the market remains unconvinced to the result of negotiations in Qatar, the opening in the oil market on Monday will probably be marked with a big element of risk. If the OPEC and Russia decide to freeze the production at the level from January, the growths may exceed 10%. On the other hand, if the meeting does not bring an agreement, we may expect that oil may cost less than 40 USD for a little longer.

Considering the impact of the above factors on the EUR/USD, and the lack of macroeconomic data and statements from the crucial Fed representatives, the volatility on the main currency pair will be limited in the forthcoming hours. That is of course, if there is no intervention from the BoJ.

Zloty is working-off the losses

The zloty has been working-off the losses from the past week since the beginning of today's session. However, it is worth noting that this move is related to a global appreciation of the British currency. Thus, it is possible that in the forthcoming weeks the Brexit will be as crucial for the GBP as for the PLN. Of course, the fundamental results for the Polish economy will definitely be less significant.

Statements from Eryk Lon for the Polish Press Agency (PAP) and from Jerzy Zyzynski for Bloomberg seem significant regarding the future interest rates. Lon claimed that, “in the situation of severe deflation, it is possible that I will support remarks about at least one decrease in interest rates this year.”

Zyzynski claims that, “cutting is demanded.” However, this decision cannot be made sooner than within few following months. We need to wait for the appointing of the new NBP president, and also for evaluation of the effects of the 500+ program, as well as the bank tax.

Both of these statements lead to a conclusion that the closest date of a decrease in interest rates is July (new projection of inflation, and new NBP president). However, we need to take note that the MPC representatives who spoke today, are one of the most dovish in the Council. The other eight (or seven, if we do not include chairman Belka whose term-of-office ends in June) continues to clearly sustain that no changes are required. Thus, for the time being, the chances for decreases are small. This should have a stabilizing effect on the PLN.

11 Apr 2016 13:32|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:

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Afternoon analysis 08.04.2016

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Afternoon analysis 06.04.2016

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