Cautious comments from Kremlin and a chance for breakthrough under OSCE mandate. No groundbreaking news in the ECB members comments. Low ZEW reading. The zloty has still been in the narrow range – around 4.18 per the Euro. Pretty good Polish trade data.
Macro data (CET- Central European Time). Survey is supplied by Bloomberg unless otherwise noted.
- Already published index on German economists expectations – ZEW (survey 40 points, actual value 33.1.
- Retail sales from the US (survey: +0.4% m/m; excluding gas and autos: +0.5% m/m).
Kremlin, ECB, ZEW
We had a pretty calm trading yesterday and most trades were made in a narrow range on the EUR/USD (1.3760 plus/minus 10 pips). The Tuesday's session has also started around the mentioned levels but incoming data from the US and the Euro are should push the volatility higher on the most heavily traded currency pair.
In a previous comment I emphasized that the Russian Federation reaction on referendums in Donetsk and Lugansk regions was ambiguous. Another signals coming from Moscow seem to confirm the theory that the Kremlin is not keen (at least not now) to exacerbate the situation in the eastern Ukrainian regions. On a late Monday official Putin's website published a short statement after the telephone conversation between the Russian president and OSCE chairperson Didier Burkhalter, where “both sides noted the importance of intensifying OSCE efforts to settle the crisis, particularly by establishing direct dialogue between the authorities in Kiev and representatives from southeast regions of Ukraine". On the other hand, Burkhalter during his conference in Bern said that “During the past days the CiO outlined a Roadmap in consultations on the highest levels with the four Geneva parties. He received positive responses from Ukraine, the Russian Federation, the US and the EU” The Road map is “centered around four building blocks of restraint from violence, disarmament, national dialogue and elections and seeks to support the Ukrainian government in providing a conducive environment for holding fair and free elections throughout the country on May 25”. The last element is key to preserve the stability of Polish eastern neighbor. However, it will also require some more autonomy from Kiev (one of the main Russian request). A set of serious talks between Moscow and Ukraine is a direct decrease (at least official) to the separatists. If, then the OSCE mission ends with success, we may finally clearly see a positive breakthrough regarding the Ukrainian issues.
Coming back to the markets, it is worth noting that yesterday's ECB comments were pretty soft. The vice President Vitor Constancio said that “it is too early to speculate about the ECB action in June” and Ewald Nowotny claimed (according to Bloomberg) that “should action be needed, then a package of measures may be sensible" (kind of dovish try to suggest that not only a cut is on the horizon but still not specific enough to initiate more moves on the market). Besides other comments from the ECB members the market should note the Thursday's final data on inflation (preliminary were at 0.7% y/y) and published at the same day GDP reading from the Euro area.
Just before the noon the ZEW index hit the wires. The reading was significantly below the expectations (33.1 vs 40 points) and 10 points less than in April. It is partly due to constant raises on the barometer describing the current situation (62.1 points and the “expectations” mainly answer the question whether the situation improves in the next six months, so if the current conditions are fairly good it is hard to improve them in the future). Another reason behind the weak result can still be situation in the east of the continent but, opposing to the previous month, that reason was not mention in the ZEW comments.
Summarizing, the market will be waiting for another set of data (especially inflation and the GDP) and comments from the ECB members. A significantly lower ZEW reading should not be enough to push the EUR/USD below 1.3700.
Still very stable
The zloty still remains stable and the Monday's trades didn't bring any changes on the major PLN pairs. Only the GBP/PLN had some appetite to test 5.15 level, but the expectations for stronger sterling were stopped before the BoE inflation report was released (due on Wednesday).
The Polish Central Statistical Office published some encouraging trade data. Despite a major export slump to Ukraine and significant slowdown to Russian the surplus increased in the first three months of 2014 to around 300 million euro. The data can be a fairly good supporter to the current account reading and the GDP on Thrusday.
Summarizing, the zloty should be still stable and most of the trades on EUR/PLN and CHF/PLN will be made around 4.18 and below 3.43 respectively.
Expected levels of PLN according to the EUR/USD rate:
Expected GBP/PLN levels according to the GBP/PLN rate: