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Daily analysis 13.01.2015

13 Jan 2015 12:58|Marcin Lipka

The EUR/USD without a clear direction at the beginning of the week. Comments from the FOMC members and suggestions on QE in the euro zone. Fast oil slide increases the pressure on the rouble and other commodity currencies. The zloty remains stable both to the franc and to the euro.

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

  • 14.00 CET: Current account balance in Poland (survey: minus 476 million euro). Trade balance (survey +100 million euro).

Comments from the FOMC members

In recent hours EUR/USD tried to generate some rebound. But the beginning of the European session decreased the odds for a success and it is falling again to around 1.1800 level. From the yesterday events it is worth to cite several Federal Reserve members comments, especially regarding the job market and future monetary policy.

Dennis Lockhart (centrist, voting this year) said that the first interest rate hike may be justified in mid year. The Fed's President from Atlanta claims that the US economy should expand at 3% annually and generate a substantial number of new jobs. Lockhart also predicts that in the base case scenario inflation should pick up at the end next year when the lower petrol effect diminishes. He is also fairly optimistic concerning the wages. The FOMC member stressed, however, that if the economic situation worsens (mainly due to weaker growth abroad) then the monetary tightening may be delayed.

Similar view regarding the interest rates is presented by John Williams (leaning dove, voting this year). The Federal Reserve member from San Francisco during interview with Bloomberg said that US economy is getting closer to the full employment and the growth should remain above the trend. He also said that the rates may be raised in the middle of the year but, similarly to Lockhart, he also said that if inflation data remains significantly below expectations and there would be no sings of faster wage rises it would be a need to consider the hike moment.

Jeffery Lacker (also voting this year) was much more hawkish. While commenting on the current situation for Reuters, he said that job market slack has almost diminished and the Federal Reserve should hike the benchmark sooner rather than later to keep the inflation checked. Lacker has been for a long time against the accommodative monetary policy and despite his voting right this year the hawks' strength diminished this year.

Taking into account the comments close to the Fed's consensus (Williams, Lockhart), there are no signs that the FOMC members changed their view on future monetary policy after the most recent wage data and threat of lower inflation in the following months. It is the element which should keep the dollar stronger.

ECB dovish

The odds for more QE from the ECB has been increasing. This may be concluded from the most recent comments from Nowotny and Coeure. The Austrian central bank member claimed that the option is both government and private bonds. On the other hand, the French executive board member in the interview for Die Welt claimed that we were ready to take decision on 22nd January on bond buying purchase but it does not really mean that such commitment is scheduled to be made. Coure also stressed that the Geek election has nothing in common with the monetary policy.

Analyzing the current statements, previous suggestions and evolution of the ECB statements we may be fairly sure (60-70% probability) that the European Central Bank decides to start full-blown QE on next Thursday, while the expansions of asset purchase program till March is almost certain.

The rouble and crude oil

After the significant turmoil observed in mid December the Russian currency has returned to well-known trend – lower oil prices results in similar magnitude of rouble slide toward the dollar. It is especially visible in the recent days after the Moscow market participants returned from their holidays.,

The chart of the rouble and the crude oil in last 10 days

Wykres - kurs rubla i ropy, ostatnie 10 dni

Source: Bloomberg: The chart presentes RUB/USD (white line, scale on the left). The fall of RUB/USD means weakening of the Russian currency against the dollar. Reverse quotation (usually it's USD/RUB) presents the rouble weakening more clearly. Yellow line presents the contract for Btrent oil (scale on the left).

If the oil continues the fast slide and the Brent drops to 40 USD it should cause fast rouble depreciation towards 70 level per the dollar. It may also lure more speculative capital which may take the advantage of stressed Moscow market and generate another attempt to destabilize the rate further. It is also worth to note that also other currencies are under pressure – the Norwegian krone and Canadian dollar.

The foreign market in a few sentences

Comments from the Federal Reserve members hasn't pointed to any significant concern regarding the slow wage growth and the threat for the inflation to fall further. Moreover, the ECB is getting bolder regarding the broader QE measures. Both elements should keep the EUR/USD under pressure and overall push the dollar higher.

Waiting for the second part of the week

Lack of signals from the global economy and expectations before the Wednesday's MPC meeting caused that the Polish currency trade was fairly calm. The zloty was mostly traded around 4.28 PLN and the franc was valued slightly above 3.55 level.

The only element which is worth to note is a fast Brent slide even if we calculate it in the PLN. It should translate into significantly lower petrol prices as early as at the end of January. It should push the retail cost per liter to around 4.00 PLN at more pumps. The Diesel would be a few percent higher.

Today, similarly to Monday, the market should remain fairly stable. The EUR/PLN should be traded around 4.28 and the CHF/PLN slightly above 3.55.

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

Range EUR/USD 1.1850-1.1950 1.1750-1.1850 1.1950-1.2050
Range EUR/PLN 4.2600-4.3000 4.2600-4.3000 4.2600-4.3000
Range USD/PLN 3.5800-3.6200 3.6000-3.6400 3.5600-3.6000
Range CHF/PLN 3.5400-3.5800 3.5400-3.5800 3.5400-3.5800

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

Range GBP/USD 1.5150-1.5250 1.5050-1.5150 1.5250-1.5350
Range GBP/PLN 5.4700-5.5100 5.4500-5.4900 5.5300-5.5700


13 Jan 2015 12:58|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:

12 Jan 2015 17:11

Afternoon analysis 12.01.2015

12 Jan 2015 12:40

Daily analysis 12.01.2015

9 Jan 2015 17:07

Afternoon analysis 09.01.2015

9 Jan 2015 12:28

Daily analysis 09.01.2015

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