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Daily analysis 13.11.2014

13 Nov 2014 12:42|Marcin Lipka

Another set of news regarding FX manipulation – stop loss hunting. Still elevated volatility on yen and speculation regarding snap election. US and UK interest rate hike perspective is pushing the cable lower. On Monday decision on new sanctions. Pessimistic comments from Bratkowski.

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

  • 14.00 CET: Current account balance from Poland (survey: minus 456 mln euro.
  • 14.00 CET: Consumer inflation from Poland (survey: minus 0.4% y/y.
  • 14.30 CET: Weekly jobless claims from the US.

Haunting. The yen. The pound. Sanctions

Financial papers published tons of articles regarding penalties on several investments banks which manipulated the FX fixing rate. However, there is the one analysis in the “WSJ” which stands out and gives a hint for further search. The Journal divided the regulators work into three camps – banks which tired to rig the fix, those who exchanged clients data between themselves and institutions which were supposed to trigger clients stop-losses. Especially the last part seems to be interesting.

According to the British Financial Conduct Authority (FCA): “During its investigation, the Authority identified within Citi's G10 spot FX trading business attempts to trigger client stop loss orders. These attempts involved inappropriate disclosure to traders at other firms concerning details of the size, direction and level of client stop loss orders. The traders involved would traded in a manner aimed at manipulating the spot FX rate, such that the stop loss order was triggered. Citi would potentially profit from this activity because if successful it would, for example, have sold particular currency to its client pursuant to the stop loss orders at a higher rate than it had bught the currency in the market”. In that case further comments are not really required. It seems that the FX market will get more regulation pretty soon.

It is getting more interesting on the yen. Investors rumor that the Japanese prime minister may announce snap election as early as on Monday. Moreover, he also considers the delay of sales tax increase to “buy” some votes. Sooner than expected election would legitimate his power and allow him to proceed more extraordinary measures regarding the reform plan. In cooperation with central bank it may be negative for the yen. So the JPY should be under more pressure if the scenario is announced.

The yen is also under influence of new USD/JPY estimates. Bloomberg quotes former BoJ central bank trader (Masafumi Yamamoto), who claims that in several months we can see the dollar stronger by 10 JPY. The former Barclays chief strategist heads the same direction, noting that the “speculative dollar purchases may push the USD/JPY toward 125-130”. The coming days should be quite volatile on the Japanese currency.

In the afternoon comments we listed main reasons behind the pound sell-off (significant inflation reduction comparing the August projections; further slowdown in the euro zone). It is, however, worth noting that how the difference between futures interest rate between the US and the UK slumped in recent week.

During the first half of 2014 the yield spread on 2-year bonds in the UK and in the US was around +45 bps. Since then we have seen a gradual reduction of the spread which dropped to +30 points in mid October. Later it was a much deeper dive – it was 15 at the beginning of November and it is only 8 bps now after the BoE inflation report. As a result, the main reason which was pushing the pound higher in the fist half of 2014 disappeared completely and the “failed expectations” are keeping the cable down.

Today the session should be pretty calm. We have still been waiting for the euro zone GDP data and even if we get a low number on jobless claims from the US it should not change the situation on the EUR/USD. Regarding the geopolitical news it is worth remembering about the finance ministers meeting on further sanctions against Russia.

Yesterday we mentioned that only personal restrictions will be introduced on newly elected Donbas leaders. Currently, however, after the most recent NATO reports on Russian troops entering Ukraine the EU may change its mind the push for more financial services or drilling sanctions (negative for the region).

Bratkowski comments

The local currency should be pretty stable today both to the franc and to the euro. The situation probably will not be changed by the CPI report (even if we get minus 0.5% on the consumer inflation) or current account publication.

Interesting and potentially much more damaging was yesterday's interview with Andrzej Bratkowski. The dovish MPC member told “WSJ” that there is a room to cut interest rates to 1% (previously he target 1.25%). He also mentioned that the current GDP projections is “optimistic” and rather all the unknowns are on the downside. He also speculated that “growth returning to just the 1% territory in the medium term couldn't be ruled out”.

It is crucial whether that opinion is shared by other MPC members. However, it is worth mentioning that in first half of 2014 he was one of the most optimistic MPC member and wanted to raise the interest rates as early as at the end of 2014. Hopefully his projections will turn inaccurate again.

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

Range EUR/USD 1.2450-1.2550 1.2350-1.2450 1.2550-1.2650
Range EUR/PLN 4.2000-4.2400 4.2000-4.2400 4.2000-4.2400
Range USD/PLN 3.3600-3.4000 3.3800-3.4200 3.3400-3.3800
Range CHF/PLN 3.4800-3.5200 3.4800-3.5200 3.4800-3.5200


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


Range GBP/USD 1.5950-1.6050 1.5850-1.5950 1.6050-1.6150
Range GBP/PLN 5.3700-5.4100 5.3500-5.3900 5.3900-5.4300


13 Nov 2014 12:42|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 Nov 2014 17:02

Afternoon analysis 12.11.2014

12 Nov 2014 12:49

Daily analysis 12.11.2014

10 Nov 2014 17:52

Afternoon analysis 10.11.2014

10 Nov 2014 12:50

Daily analysis 10.11.2014

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