Daily analysis 15.11.2013

No breakthrough after Yellen Q&A session before the Senate Banking Committee, but some remarks should keep the dollar under pressure, stocks in the bullish mood and treasuries yields from recent highs. The zloty remains around 4.18-4.19 per the euro and hardly any changes are expected.

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

• No major economic data which can significantly affect the analyzed pairs.

Around 1.3450. Yellen

Janet Yellen sounded pretty confident during her first appearance before the Senate Banking Committee. She confirmed her dovish approach to the monetary policy, but the vice chairwoman also sees some threats regarding the asset purchase programme. She was trying to explain the causes which stand behind the current Fed's policy. The market tried to react to some single statements but finally the EUR/USD fished the conference unchanged.

The most dovish part of Yellen's hearing was her statement (published one day earlier). She claimed in the testimony, that “A strong recovery will ultimately enable the Fed to reduce its monetary accommodation and reliance on unconventional policy tools such as asset purchases” and “a labor market and economy performing far short of their potential” which still need the support of the monetary policy. Answering for the Senators' questions she said that the QE “cannot continue forever” and the asset purchase programme brings also some risks (both bullish for the dollar). On the other hand Yellen clearly stated that the current monetary policy didn't create stock market bubble (bullish for stocks and bonds and bearish for the dollar – the loose policy can continue). She also told the Committee that (most dovish in the Q&A part) “It's important not to remove support especially when the recovery is fragile” and it can be “costly to fail to provide adequate accommodation” (negative for the greenback). Finally, she repeated well known Bernanke statement that tapering is not at a pre-set course and added that Fed will decide on each meeting whether to reduce the asset purchase or not.

Yellen's appearance didn't bring us closer to answer the most important question: “when the tapering is suppose to start”, but it confirmed that Yellen will be at least as dovish as Bernanke. The key data is going to be the November jobs report (scheduled to be published at the beginning of December) which can either motivate the Fed to start taper in December or push the date further into 2014.

Summarizing the EUR/USD didn't get a clear argument to rise or fall, but the assurance that the future Fed's chief will be dovish should keep the dollar under pressure in the medium term. Today the base case scenario is a range trade between 1.34-1.35.

Under 4.20

The zloty was pretty calm both during the Janet Yellen hearing and after inflation report from Poland. The EUR/PLN stayed under 4.20, what should support the range trade (4.16-4.20) in the following days.

Lower than expected inflation reading (0.8% y/y vs. 1.0% y/y) should not have any impact either on the zloty or Monetary Policy Committee decision. Analyzing any forecasts, the inflation should gradually pick up in the next quarters and the October CPI was driven down by lower transportation costs (http://www.stat.gov.pl/cps/rde/xbcr/gus/PT_price_indices_of_cons_goods_10m_2013.pdf ).

Summarizing, both today and at the beginning of the following week the zloty should remain stable to all major counterparts. No major changes and increased volatility is expected.

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

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