Daily analysis 12.08.2014

The Russian convoy heading toward Ukraine may set the sentiment for the next several hours. Fischer with no clear suggestions on monetary policy. The Norwegian krone significantly higher after the inflation data. The ZEW slumped to almost two-year lows. The EUR/PLN is moving above 4.20 after another disappointing data from Germany.

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

• No macro data which may significantly affect the analyzed currency pairs.

Ukraine. Fischer. Krone. The ZEW

There is another East topic which will fill the market with news – Russian humanitarian transport to Ukraine. There has been pretty quickly reports that the “aid” would be used a cover military operation. In that context is pretty oddly to read Kyivpost article (which is quite far from sympathizing with Moscow). According to the Ukrainian portal, which cites the official statement from the Ministry of Foreign Affairs “Due to the complex humanitarian an social situation in the Donbas, Ukraine President Poroshenko took the initiative to send to Luhansk Oblast international humanitarian aid mission”. Additionally Kyivpost also claims that according to a senior official in Ukraine's presidential administration “Russia will have a formal part in the convoy”.

We are getting more data regarding the issue from “The Wall Street Journal”. The “WSJ” claims that in three-party talks (Ukraine, separatists, and Russia) took part a former Ukrainian President Leonid Kuchma. According to his interview with Interfax news agency the convoy “would operate under Red Cross auspices and be accompanied by monitors from the Organization for Security and Cooperation in Europe. It is hard to judge whether it will be a turning point in the conflict but the fact that all parties negotiated such sensitive issue should be regarded as a positive element. It is also worth to mention that we will have to wait several hours till the operation ends because most of the 1000 km distance is within Russian Federation and one of the most important moment would be the moment when the transport crosses the Ukrainian border.

Moving toward more market topic we could had pretty high expectations before the Monday's Stanley Fischer speech in Sweden. The second most important person in the FED, however, failed to give a clear message how he sees the future monetary policy. Firstly it was pretty obvious that the former Bank of Israel governor heading closer to the dovish camp. He spent a fair amount of time suggesting that there is still much more room for improvement regarding the housing market, the US experience significant spending government cuts, the growth is weak, labor participation rate low and productivity is at subdued level. Further, however, Fischer sounded pretty cautions regarding the macroprudential policy. Some Fed's doves sees it as a solution to give some stability to the economy instead of moving the interest rates higher. In result the speech should be regarded as neutral and we will have to wait for next Fischer's speech.

Monday was quite bullish day for the Norwegian krone. Instead of expected 1.9% y/y inflation reading the statistical office revealed that CPI rose 2.6% y/y. The data which exceeded the central bank goal provoked comments on September MPC meeting. According to cited by Reuters Stephen Gallo, chief currency strategist at BMO Capital Markets said that “I thing Norgest Bank will probably take a more guarded tone towards inflation risks and Norwegian weakness at its September rate decision”. Moreover Erik Bruce from Nordea Bank told Bloomberg that 'With inflation much higher than expected, the krone much weaker than expected, labor market figures on the strong side, the question in September will be about when the fist hike happens in the interest rate forecast. A rate cut in Norway is off the agenda”. If the further readings confirm the trend we should expected further krone appreciation fist to the 8.08 per the euro (June lows) and secondly below 8.00 (12-months bottom).

The eight in the row decline of ZEW index does not improve the sentiment to the EUR/USD. Additionally the German economic confidence index fell to the lowest level since December 2012. What is even more surprising that index fell significantly below the Bloomberg median estimate (8.7 vs 17) and slumped almost 20 points comparing to the July publication. In the ZEW comments we may also read that “the decline in economic sentiment is likely connected to the ongoing geopolitical tensions that have affected the German economy by now. The Institute also quotes weak production and orders data combined with lack of momentum in the eurozone which finally results in lower than expected 2014 growth for Germany.

Despite that the geopolitical situation does not have to heading toward a bad direction a weak ZEW reading combined with pessimistic comments is causing that we are retesting the recent lows and the probability that we may fall below 1.3300 level increased significantly.

Again under pressure

The zloty wasn't able to make up its mind whether the East news was a positive or negative. In result we were trading around 4.20 per the euro in the early morning.

However, when German ZEW index hit the wires and confirmed that our main trading partner may slow significantly in the near future we quickly moved toward 4.2100 per the euro. If the sentiment does not improve (EUR/USD; condition of the US stocks) we should expected a fairly quick test of 4.22 level per the euro or a move above 3.16 on the USD/PLN.

Futher north side move both on the EUR/PLN and CHF/PLN would be possible after weak reports from Poland (GDP, CPI). Utile the numbers are released we should not exceed 4.22 per the euro and 3.48 on CHF/PLN despite that the sentiment toward the zloty should remain negative.

Expected levels of PLN according to the EUR/USD rate

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