EUR/USD falls from record highs after risk aversion increase and Mario Draghi comments. The days to ome will show if Euro is in fact Safe Haven. Monday may be started with Euro at 4.25 if no breakthrough occurs in the Ukraine case.
Macro data (CET- Central European Time). Survey is supplied by Bloomberg unless otherwise noted.
- No macro data that could significantly influence analysed currencies.
EUR/USD falls. Politics. Test for Euro
Although macro data do not make an impression on the markets, it is worth to pay attention to yesterday's readings from USA. Retail sales published on Thursday was better than expected, both on headline and after excluding petrol and cars sales (respectively +0.3% m/m vs expected +0.2% and +0.3% vs expected +0.1%). Correction on the last month's amount was due to lesser petrol sales. Weekly jobless claims were also positive and the reading was 15k lower than expected (315k). EUR/USD did not react to these data (despite the fact that they were bearish) and was steady on 1.3950. More clear risk aversion was caused by the USA Secretary of State during his Senate speech. As John Kerry claimed, if Russia takes Crimea territory, very severe penalties will be imposed on this country. In the afternoon the European investors from the States recalled the weaker data from China and the weekend referendum. It caused quite fast yen strengthening and restatement of U.S. stock indices. EUR/USD also weakened and before 6.00 pm went below 1.3900.
After the EBC president speech was published there were much more dynamic movements. Mario Draghi send in Vienna that "the difference in interest rates between the Euro Zone and the rest of the world will probably go down (that's no news at all as the market assumes that in USA first increases will take place in mid-2015 and in Euro Zone in 2016) and, if all other factors remains unchanged, this should put a downward pressure on the common currency". Draghi also added that Euro strengthening lasting one and a half year indeed had an impact on low inflation readings and, keeping in mind the current inflation level, (Euro rate - author's note) is more and more important in our views on prices stability". The second part of this sentence clearly indicates who is to blame for low inflation level. Will this fact push ECB to loosening the monetary policy is questionable. Keeping in mind Draghi's latest statements and declarations, it is rather impossible for now. However, if we have to deal with future increase in appreciation of the common currency (two or three figures above 1.40), we can expect a reaction. EUR/USD fell 50 pips after Draghi's statements in Vienna, but such reaction would not be as strong if the sentiment in the market was neutral.
Yesterday I wrote about important meeting between the USA Secretary of State and Russian Fotreign Minister which begins on Friday in London. The press is quite restrained when it comes to hypothetical offers that USA would propose to Russia. The only head's up about the general direction of the talks is John Kerry's statement quoted in the "Washington Post". He said that he wants to push Russia to accept "something that does not mean full Crimea annexation. One could assume, that the West wants to respect the wide autonomy of the peninsula (maybe even independence) if Russia will cease to try to (at least formally) include this territory within the range of Kremlin power. After that the currency markets (especially emerging ones) along with the roube should react positively.
Summarizing, if there's any positive solutions to the Crimea problem (after the Kerry-Lavrov meeting), we can expect some rebound on assets connected to the risk appetite (mostly stock and EM currencies). On the other hand, in case there is no specific solutions and the conflict continues, these are the currencies from our part of Europe (stocks and EM currencies, most of all - the rouble) that will be restated to the greatest extent. It is also worth paying attention to EUR/USD, whether the breakthrough in Ukraine occurs or not. If we remain within levels of current variabilities (above 1.3850) in case there is no positive development of events, or we get back to 1.3900 and above after there is a solution provided, then the chances to new high records of the EUR/USD go up. There is also an interesting thing presented by Reuters. In one of the agency's telegrams there was a note that "American assets fell below 1% and the losses accelerated due to the news about F-16 planes from USA landed in :ask, Poland". Well, even the reputable and impartial sources of information sometimes get carried away in trying to explain each end every change on the market
Most important news from over the eastern border
On Thursday in the afternoon the zloty has reacted negatively to the information concerning Crimea and the clear increase of the risk aversion (stock falls, yen strengthening) made us testing the levels of 4.24 per Euro. Due to falls on EUR.USD we could have observed even faster restatement on USD/PLN, which went towards levels of 3.06. The situation is now a bit more peaceful, but the market is obviously waiting for some development in negotiations between Russia and the West.
At 2.00 pm we will receive the inflation data from Poland. The zloty market should not react t them, irrespectively of the readings. The monetary policy for the future couple of months has been strongly stated by prolonging forward guidance until the end of 2014 Q3 and clear suggestions of Marek Belka about lack of changes in the interest rates' levels until the end of 2014.
Summarizing, the market should focus in the hours to come on news from Kerry - Lavrov negotiations. In case the consensus is reached, the zloty should go towards 4.20 per Euro. If, however, the understanding is not achieved, the Monday quotations will probably show 4.25 on EUR/PLN.
Expected levels of PLN according to the EUR/USD rate:
Expected GBP/PLN levels according to the GBP/PLN rate: