Daily analysis 13.03.2014

Constantly higher on EUR/USD, despite the information reaching the market, are at best neutral for the main currency pair. Can the Kerry – Lavrov meeting bring any standpoint rapprochement? New Zealand increases their interest rates as the first developed economy. Zloty stabilizes in areas of 4.22 per Euro, though it might be a short term stop before further PLN weakening.

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

• 13.30 CET: weekly applications for unemployment benefits in USA (estimations: consensus 330 thousand).
• 13.30 CET: retail sale from USA (estimations: +0.2% m/m; with exclusion of fuels and cars +0.1% m/m.

Constantly higher. Meetings in London. New Zealand

During recent hours EUR/USD climbed by 100 pips, establishing new two-year records. And there is a question – what caused such significant increase of main currency pair, despite average (at best) sentiment on the markets and constant geopolitical tension, which remains investors' burden? First of all, the information that appeared since yesterday morning were not crucial in any degree. Bulls could only notice a relatively hawkish statements of German Minister of Finance on EUR/USD. He said (quoted after “WSJ”) that “from Germany's point of view, money rates in Euro Zone are on much too low level” and also that he “does not expect a deflation in Euro Zone”. Supporters of further increases on eurodollar also emphasized more dovish statement of Stanley Fisher, candidate for Federal Reserve vice-president. In his note published before Senate Committee of Finance he emphasized that current monetary policy should remain expansive, because the 6.7% unemployment maintains on “too high a level” and the inflation will still be “a bit below” Federal Reserve goal which is a level of 2%. However, bears also had their arguments, which despite being ignored now, may be reminded at some point. First of all, the Chinese data were weaker than expected (both in industrial production and retail sale). Along with the news about export's decrease before few days, it may cause the return of concerns about a possible economic increase on level of 7.5% in 2014. The other negative information for EUR/USD (also ignored) were the Central Bank of Spain president's statements. He suggested that further increases of Euro’s value can force ECB to lower interest rates. Lack of clear reason to continue given movement (irrespective of how much reliable it is) often makes us approaching the end of concrete tendency.

We should also remember that a case of diplomatic conflicts on the line Russia-West still casts its shadow on the market (especially of EM currencies in our region, including rouble). Media broadcast show that both sides are standing strong by their opinions. Europe and USA are speaking more and more confidently about economic penalties and also prepare themselves to strike Russia economically. According to Reuters, the decision about selling a part of oil reserves in USA (for the first time since 1990) causes a decrease of its price (descend below 100 USD per barrel). It is a signal for Moscow that it can be hit in a tender spot – incomes from selling energy resources. On the other hand, Bloomberg informs that the other side is also not idle. Russian government is talking with national entrepreneurs about the governments's help in case of cutting off their companies from the outside financial sources. One of the breakthrough chances can be tomorrow's meeting of USA State Secretary and Russian Minister of Foreign Affairs in London. John Kerry will probably try to build a special “contact group” (he talked about it in “The New York Times” a few days ago), which would consist of representatives from USA, European Union, Russia, Ukraine and international organisations. If Lavrov will agree to such solution (especially for Ukraine's participation in this delegation), then we can expect a de-escalation of conflict. In any other case (after elections on Crimea this weekend) the chances for reaching a fast understanding can decrease. Then the pressure on the markets will develop and our region's currencies (including Russian rouble) will pay the price for that.

Going to the other side of the globe, we can notice that New Zealand increased its interest rates by 25 base points to 2.75%. They are the first developed countryto have decided to tighten its monetary policy. According to central bank (RBNZ), this decision was caused most of all by the increase of future inflation pressure (which was caused by the demand on real estates, high prices of export goods and high indexes of business and consumers' optimism). RBNZ chief also claimed, that the money rates can still increase by another 100 basis points this year. Monetary policy's tightening traditionally helps the local currency and it is not excluded that we will soon test the record levels on NZD/USD (0.88; currently 0.8550). The market also speculates that at some point we can even achieve a value of Australian dollar (currently it costs a bit over 90 American cents).

In conclusion, the eurodollar optimists chose a quite risky solution – fast increase without having built any concrete leitmotif. Thus it is not excluded that such rally can soon come to an end. The reason for such scenario can be e.g. the escalation of tense on the line West-Russia (despite EUR/USD seems to be currently resistant for geopolitical signals), or Wednesday's Fed summit, which will not be dove enough.

Calming of sentiments

Few recent days were quite tough for Polish currency. Uncertainty of situation in Ukraine or another protests in Turkey caused that there were not many reasons for purchasing PLN (MPC also did not give them by suggesting that the money rates may remain at current level until the end of 2014). Today we have a slight calming of sentiments. However, the news from diplomatic talks between Moscow and the West need to be followed carefully. If the Kerry – Lavrov meeting will not bring any rapprochement of standpoints, we can begin next week in limits of 4.25 per Euro.

From the positive information it is worth noticing the good data on foreign trade published by Central Statistical Office. In January Polish economy recorded a surplus in goods turnover at a level of 176 million Euro (last year it was a deficit of 426 million Euro). A significant increase of export to the countries in which we usually had a small share (Finland, Sweden, Norway, Republic of South Africa, China, United Arabian Emirates) and a clear increase of electric machines export dynamics' growth (by 11.7%) can also be considered optimistic information.

In conclusion, we should have a calm session today, and the levels in areas of 4.22 on EUR/PLN should be maintained. I would expect more nervousness tomorrow and on Monday (Kerry-Lavrov meeting; elections on Crimea). In case of further conflict's escalation, zloty can find itself under a significant pressure.

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

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