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Daily analysis 14.05.2014

14 May 2014 12:02|Marcin Lipka

Confusion after Bundesbank unofficial reports. Inflation projections and the Bank of England conference in focus. Weak data from the US and a possible downward revision of the first quarter GDP reading. Polish MPC member does not rule out the benchmark cut if the ECB decides to loosen the policy. The zloty remains stable, but a probability of the USD/PLN breakout is rising.

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

  • Already published data on UK unemployment (survey: 6.8%; actual: 6.8%.
  • 11.30 CET: Bank of England inflation raport.

Rumors. Inflation. US data

The Tuesday session was dominated by rumors on possible Bundesbank support to the ECB's unconventional policy actions. Besides the central banks issues we had also much weaker than expected retail sales readings (but taking into the account the revision, the reports were actually not so dire) from the US and an ongoing political/diplomatic discussions between the West, Ukraine and Russia. Today, however, most of the attention should be brought to the BoE messages (regarding both the inflation report and Mark Carney conference).

Yesterday around midday we had around 50 pips slide on the EUR/USD. It was not caused by the weaker than estimated ZEW numbers but “The Wall Street Journal” reports that Bundesbank is considering to support ECB in its unconventional monetary policy measures “including negative rates on bank deposits, long-term loans to banks at capped interest rates and purchases of packaged bank loans”. The “WSJ”, however, sourced this information from “a person familiar with the matter' and other news agencies tried to confirmed it with the Bundesbank. But instead of getting an answer, we received more confusion. Reuters sources at the German Central Bank reported that Bundesbank “support to the ECB has always been there” (info with no real value) and Bloomberg citing “two people with knowledge of the matter” claimed that “the Bundesbank support for any more stimulus for the Euro area won't be automatic even if the European Central Bank cuts its inflation forecast for 2016”. In result, we ended up with more confusion and broad division whether the “WSJ” report was actually true or was it just intentional leak from the German Central Bank to check the market reaction.

Recently published data on the British unemployment was in line with expectations (it dropped to 6.8%) but the compensation growth significantly slowed down, what pushed the cable visibly lower (still much slack in jobs?). The sterling investors have been also waiting for the BoE inflation report and Mark Carney press conference. Besides prices change the Bank of England with also give a set of estimates on GDP growth and employment. The conference where Carny will probably try to smuggle the message that the monetary policy will be tightened some time at the beginning of 2015 should be evenly interesting, but the interest rate rise will be much smaller and slower than in the previous times at similar economic cycles. The pound reaction will be depended how the economic projections would differ from the February estimates. We can also see how much of the good news is already priced in into the GBP rate.

The US retail sales headline data was pretty weak and instead of estimated growth around 0.4% m/m, we received only +0.1%. Despite that the disappointing report was almost leveled off by significant revision of the March data (taking into the account two months we can see that the sales was broadly in line with surveys), some uncertainty remained with a question whether a rebound from the winter slowdown will be as rapid as most economists expected.

Staying at the other side of the pond, it is worth to note a short article in “The Wall Street Journal” showing an anticipated revision of the US GDP reading for Q1 (the first estimated has already been published +0.1% q/q annualized, seasonally adjusted; second is scheduled on May 29th). After the latest Commerce Department inventory downward revision JP Morgan and Barcalys Capital lowered their GDP estimates for the Q1 growth to minus 0.8% and minus 0.6% respectively. Despite that the data is quite historical, we can assume that if it is true we may see some selling pressure on the dollar.

Summarizing, the most action is expected on the British pound pairs. The EUR/USD should remain fairly stable and only a clear suggestion (not rumors) from the European monetary policy makers can push the EUR/USD under 1.3700 level.


Similarly to the previous days, we had a calm trading both on EUR/PLN and CHF/PLN. Some more volatility was experienced on USD/PLN and it is possible that the dollar-zloty pair is getting ready to some stronger breakout (at least to 3.10 level). However, for the scenario to get materialized, we have to wait for a more significant slide on the EUR/USD (the zloty rather remains steady to the Euro).

In the morning we had quite an interesting statement from the Polish MPC member. Professor Chojna-Duch said (according to PAP) that: “She does not rule out the return of the discussion of the interest rate cut if the ECB cuts rates in June or push the policy toward the unconventional measures and the inflation in Poland remains weak and GDP growth stays below the projections” After the ECB latest comments I suggested that looser Euro area policy does not have to translate to zloty's strength due to higher probability of keeping the interest rates unchanged. But earlier nobody from the Polish MPC hasn't even suggested that it is possible that we may get a rate cut. In result the morning reports should fuel the discussion whether there are really arguments for the cuts which may weigh on the zloty.

Summarizing, we should have relatively calm session (besides the GBP/PLN). The EUR/PLN will probably stay close to the current levels. Despite some more arguments for the USD/PLN rise I don't expect any major moves today and we should remain under 3.06 level.

Expected levels of PLN according to the EUR/USD rate

Range EUR/USD 1.3750-1.3850 1.3850-1.3950 1.3650-1.3750
Range EUR/PLN 4.1800-4.2200 4.1800-4.2200 4.1800-4.2200
Range USD/PLN 3.0300-3.0700 3.0100-3.0500 3.0600-3.0800
Range CHF/PLN 3.4200-3.4600 3.4200-3.4600 3.4200-3.4600

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

Range GBP/USD 1.6850-1.6950 1.6950-1.7050 1.6750-1.6850
Range GBP/PLN 5.0900-5.1300 5.1100-5.1500 5.0700-5.1100

14 May 2014 12:02|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:

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