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Daily analysis 14.08.2014

14 Aug 2014 13:15|Marcin Lipka

Weak data from France and Germany but better from the south of Europe. The pound has clearly lost on its value, after yesterday's inflation report. Disturbance with the convoy maintains, however its influence on the market should be limited. Zloty gains on its value after GDP reading, which was coherent with expectations.

No macro data which may significantly affect the analyzed currency pairs.

  • 14.30 CET: Weekly applications for unemployment benefits in USA (estimations 295 thousand).

Data. Pound. Disturbance

The market wanted to take advantage from yesterday's slight sentiment improvement and weaker data about retail sale from USA (laying weight on the dollar, because of the chance for increasing the zero money rates for a longer time) to generate a stronger working off on EUR/USD. It worked out, but not entirely. During the session we have reached the areas of 1.3415 for a short moment, however later the main currency pair has been brought back in the middle areas of 1.33, because of the anxieties of the weaker results of European economy.

Anxieties of Euro Zone's shape were mostly confirmed. In the morning we have received the data from France. Its GDP remained on a constant level, instead of increasing by 0.1% q/q. According to the informations presented by the National Institute of Economy, only the consumption was outstanding, however it was rather a work off after the first months of the current year. The rest of the components (investments, export's contribution alteration) remain close to the zero level, which only confirms that this economy remains in stagnation.

The situation in Germany also does not look too optimistic. GDP of our western neighbour has decreased by 0.2% q/q (seasonally equalled), which was below estimation by 0.1 per cent. Additionally it is worthy to notice a clear slow down of the year-to-year data from 2.5% y/y to only 0.8% y/y (a good II quarter of 2013 “fell out”, I quarter of 2014 was revised downwards, as well as the negative reading in recent three months). German Statistical Office in its comment to the data, considers the weather factors (mild winter), which caused the movement of investments from second quarter to the first one (especially from the building branch), the effect of bigger number of days off from work, and also the decrease of trade surplus in comparison to the previous period, which contributed negatively with the publications. The increase of activity regarded only the consumption and government expenses.

On the other hand Portugal and Spain went out relatively well in the statistics (both of them had 0.6% q/q), however both of these economies have still a lot of catching up to do, in order to at least get close to the GDP level from before the recession. In general today's publications can be summarized negatively, what is only confirmed by the group data from Europe. In second quarter Euro Zone had not achieved any growth in q/q relation, and in year-to-year relation, GDP slowed down from 0.9% to 0.7% y/y (for the whole European Union, we have slowed down from +1.4% to +1.2% y/y).

Yesterday we had a very interesting situation on the British currency. GBP/USD pair descended by 150 pips during recent 24 hours. The main reason for “cable's” price reduction, was Bank of England inflation report, in which the monetary authorities revised the expected growth of average salary for the end of current year from the level of 2.5% (in May's report) to 1.5%. The second reason of GBP/USD descend was a clear downward review of the unemployment level, which is close to a full employment (which is the one, that does not cause the inflation pressure). Previously it was practically equal with current unemployment (6.4%), however currently it has been revised to 5.5%. Both of these reasons (which are related) cause, that the chances for the increase of money rates in this year, have clearly decreased, because of inflation growth probability's decrease. It may be a crucial moment for the British currency, because the pound grew mainly due to the perspective of monetary policy tightening in this year. It is not excluded that a significant amount of long positions on GBP/USD will be reduced, and a descend in the limits of 1.65 is quite probable.

Western media („WSJ”, „NYT”) constantly pay a lot of attention to the Russian convoy. „The Wall Street Journal” had even entitled the article in a way suggesting, that Ukraine publishes incoherent communicates regarding the Russian transport („Ukraine Sends Mixed Messages on Russian Convoy”). However, in general according to president Poroshenko's chancellery Wednesday's statement cited by “The New York Times”, the cars will be allowed to enter the territory of Ukraine after they will be inspected by the authorities from Kiev and OSCE. Thus, it fully overlaps the informations (“WSJ”) about the understanding between the former president Kuchma and the separatists and the Russian side, about the conditions of humanitarian aid, which was published on Tuesday.

In conclusion, the data from Europe were weak and they bring us closer to further monetary policy easing by EBC. However, the EUR/USD market does not react on the worse readings with descends. On contrary, we are again getting closer to the upper areas of 1.34. Thus, it is not excluded, that the bears will be frightened by main currency pair's exceptional resistance for the data and will realize their recent profits. It should even cause a movement in the areas of 1.3450-1.3500. Another helpful factor could be acceptance of help by Ukraine, which can be received as an element of conflict's de-escalation.

Good GDP

Anxieties that the national economy can slow down below 3.0% y/y were luckily not confirmed. According to the initial GUS data, GDP has increased by 0.6% q/q (seasonally equalled), and in a year-to-year relation it was +3.2%.

One can be satisfied with Polish market's result, especially considering how bad our western neighbour is doing. Zloty reacted positively on the data, and enforced itself in relation to euro in limits of 4.18 and CHF/PLN descended in the limits of 3.45. GDP maintenance above 3.0% y/y is also a signal for the MPC, that the economy takes the inner disturbance quite well, and perhaps money rates cutting will not be necessary (it is all up to the data that will income within the upcoming 2-3 months).

In conclusion, a good picture of national economy should help zloty until the end of the week. Basis scenario for EUR/PLN during the upcoming days will be remaining slightly below the limit of 4.20 with a perspective of descending in the limits of 4.16-4.17 in case of a stronger EUR/USD wearing off or some positive informations from behind the eastern boarder.

Expected divisions of zloty pairs determined by EUR/USD rate:

Range EUR/USD 1.3350-1.3450 1.3250-1.3350 1.3450-1.3550
Range EUR/PLN 4.1600-4.2000 4.1800-4.2300 4.1600-4.2000
Range USD/PLN 3.1000-3.1400 3.1400-3.1800 3.0600-3.1000
Range CHF/PLN 3.4200-3.4600 3.4400-3.4800 3.4200-3.4600

Expected levels of GBP/PLN rate determined by GBP/USD:

Range GBP/USD 1.6550-1.6650 1.6650-1.6750 1.6750-1.6850
Range GBP/PLN 5.1900-5.2300 5.2100-5.2500 5.2300-5.2700

14 Aug 2014 13:15|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.

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