Daily analysis 12.03.2014

Bulls are not giving up on EUR/USD and we are still moving in the areas of 1.3850. What should we pay attention to during Federal Reserve summit next week? Pressure on fall of some of the EM currencies deteriorates the sentiment in EM region. Zloty slowly falls because of the situation in Ukraine and worse attitude towards emerging markets.

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

• No macro data that could significantly influence analysed currencies.

Flat. Fed. Emerging markets

EUR/USD opens the European session in areas of 1.3850 again. Slight hesitations occurred yesterday, after statements of ECB vice president, Vitor Constancio. He suggested, that the investors might have taken bank's intentions in a wrong way (too hawkish) and ECB attitude is still dovish, with many tools down their sleeve. Reduction on the main currency pair however not for long (strong camp of bulls defended the fall) and we have returned again in the areas of 1.3850. Thus it is clear that we have to wait for a stronger impulse to get EUR/USD lower.

It is not excluded that next week's summit of Federal Reserve will be this signal. One should remember that the decisions in March will be made for the first time by new Fed president – Janet Yellen (the press conference will get a lot of attention). Additionally, FOMC will publish some new economic forecasts and, most of all, update the members' expectations towards future level of interest rates. This fact was underlined by Jon Hilsernath (often described as the Federal Reserve unofficial spokesman) in today's “The Wall Street Journal”. Chief of “WSJ” economic reporters declares that in case of quitting current forward guidance (and replacing it by a wider description of economic indexes that could cause alteration of monetary policy) the market will concentrate on a point chart (during December's projection a majority of Federal Reserve members assumed that at the end of 2015 the interest rates will not exceed the level of 0.75% and in year 2016, they will remain in limits of 1.75%). However, it is difficult to assume that these levels will be clearly decreased, especially if the inflation slowly increases and the economic increase along with unemployment are systematically improving (so this may be an argument for purchasing a dollar and not selling it).

During recent hours we had a few disturbing signals from EM currencies. Turkish lira had clearly weakened and EUR/TRY pair increased by over 3% during recent days (EUR/PLN increased at the same time by approximately 1%). The main reason of sentiment towards Ankara weakening were another protests against current government, but of course the crisis on the line Russia – West also did not improve the situation. Hungarian forint, which is closely related with zloty, also looks disturbing. Currently it tests the weakest levels for over two years. Additionally, we are approximately only 3% below historical records on EUR/HUF pair. Going to South America, Chilean peso's situation also looks interesting. This currency, was considered as an equivalent of stabilisation which for a long time, lost almost 10% this year. It is of course related to the lowest since 44 months prices of copper, which is Chile's main export raw material. All the issues mentioned above do not improve the sentiments towards EM counterparts and are also a burden for PLN.

Summarizing, the market holds still for more clear signals (Crimea and information about the future monetary policy of the main economies). Although there are less and less elements to support the growth of the main currency pair (discounted EBC, Fed will almost certainly won't stop the exiting from the quantitative easing), EUR/USD keeps the high levels. Thus if there are no additional factors there is a big chance for the slow weakening rather than testing recent highs.

Another day of weakening

The EUR/PLN situation looks worse almost every second. Ever since we learned about the Russia's actions in Crimea, the market test the last Monday's maxims. This somehow confirms the thesis that there are not much reasons to buy zthe zloty in the short term. Additional pressure on the Chilean peso, Turkish lira and Hungarian forint can be observed, which also is not helping the situation of the domestic currency. It is also worth remembering that the interest rates will most probably remain unchanged until the end of the year, which in mid-term lowers the chances for the zloty appreciation.

Summarizing, if the EM situation and issues between Moscow and the West fail to improve, we will be able to test the levels of 4.25 on PLN and 3.50 on CHF/PLN relatively soon.

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

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