Daily analysis 12.06.2014

The EUR/USD is flirting with the YTD lows. Solid data from the UK job market is bullish for the pound. Significantly stronger Kiwi after relatively hawkish statement from the RBNZ. The zloty is stable but foreign institutions predict further appreciation.

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

• 14.30 CET: Weekly jobless claims from the US (survey: 309k).
• 14.30 CET: Retail sales from the US (survey: +0.6% m/m; excluding autos and gas: +0.5% m/m).

Lower. Solid data. 100 pips higher

There are still no arguments to generate a more visible correction on the EUR/USD. In result, we are getting closer to the 1.3500 level. Additionally, the most heavily traded currency pair is only 50 pips above YTD lows. It is also hard to predict that we may experience dollar weakness after the US data. Probably the jobless claims will stay close to the recent levels of 300k and the retail sales may exceed the optimistic economists' projections. In result, it is possible that as early as today the euro-dollar may fell under 1.3500.

Data from the UK job market which was published on Wednesday was a positive surprise. The unemployment dropped to 6.6% from 6.8, whereas economists surveyed by Bloomberg expected a fall to 6.7%. Other job's market statistical details were also upbeat. Jobless claims eased more than estimated and the amount of employed rose to 30.5 million, the highest on record. “The Wall Street Journal” also points out that “the share of the population aged 16-64 in work at 72.9% is close to the record high of 73.1% seen in 2004-2005”. Economists from BNP Paribas put the UK data into the US context and claimed (also “WSJ” source) that “it is roughly equivalent to a monthly rise in U.S. non-farm payrolls of 600.000. The only negative aspect in the report was subdued growth of earnings which still remain below the inflation rate. However, taking into the account all the incoming data regarding the British economy it seems more obvious that Bank of England has less and less time to begin its hiking rate cycle. Therefore few should be surprised by a 50 pips rise on the GBP/USD and a possible resume of the bullish trend on the cable.

According to the yesterday comments, we had pretty strong rise on the NZD/USD. It was both the consequence of 25 bps rate rise and a confirmation to keep the inflation pressure under control (hawkish message from the RBNZ). It is also worth emphasizing that the new central bank estimates are in line with the March projections. It was confirmed that the RBNZ expects that 90-day bank bill rate (has similar path as the benchmark rate) will be at 4.0% at the end of 2014 and 4.5% in June 2015. It means that more hikes are on the horizon which was widely doubted just before the central bank meeting. In result we are around 100 pips above the yesterday levels and only 150 pips below the all time highs registered in 2011.

Summarizing, the EUR/USD has still more reasons to fell than to generate a solid correction. It also didn't get enough help from better-than-expected industrial production data from the Euro area. It looks like a chance for a rebound is pretty slim and the bears are holding quite strong on the EUR/USD.

Stable with the appreciation potential

The zloty has stabilized around 4.11 per the Euro and 3.37-3.38 on the CHF/PLN. Investors may be quite cautious to make larger trades before tomorrow's data. The BOP, after solid trade data published by GUS, should exceed the expectations but the real story is in the CPI reading. The game is whether the inflation picks up a bit or stay at current ultra low level at 0.3% y/y. It may be one of the key data from the MPC before the July's meeting even though the Committee claims it currently cares much more about the growth than the CPI.

In the long term, however, and in the scenario of leaving the interest rates unchanged, the zloty should be a buy opportunity. Today's “WSJ” cites economists who confirm that theory. According to Societe Generale investors should sell Euro “against emerging markets currencies and against a mini basket of the Norwegian krone, Polish zloty and Turkish lira”. Selling euro vs “other European currencies that have strong fundamental stories is attractive” according to Roger Hallam, chief investment officer of global fixed income at J.P. Morgan Asset Management. A similar view is also presented by Daniel Wood, a fixed income portfolio manager at Fisher Francis Trees and Watts who has around 50 billion USD under management. He claims that “It is fairly easy to make an argument that the forint and zloty will continue to flourish against the Euro given the backdrop of the ECB's actions last week”.

Summarizing, it is worth agreeing with most of the opinions presented by the foreign players. In the medium term there are much more arguments to favor the zloty's strength than weakness. There should be an open way to 4.00 level until the NBP will be forced to take action or the exporters margins get hurt too much. In the following hours, however, the market should get focused on the CPI. If we get inflation reading at 0.3% y/y or lower there may be around a quarter of one percent downside move on the PLN.

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

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