Daily analysis 16.03.2015

Calmer market before the Federal Reserve meeting. What is going to be in focus besides “patience” during the Fed's meeting? Goldman Sachs sees the euro at 80 US cents in 2017. The zloty regained some ground after the Friday's weak session. The euro is close to 4.13 PLN level.

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

• 14.00 CET: Core inflation from Poland
• 14.00 CET: Current account balance (survey minus 920 million euro).
• 14.15 CET: Industrial production from the US (survey: +0.2%).

Sentiment improvement and “GS” estimates

During the European session we can see a slight sentiment improvement caused by Chinese prime minster comments on more tools that can be used to stimulate the economy. It helped the Shanghai stock exchange to rise toward multi-year highs. It also pushed the German index to all-time-high above 12k mark.

The euro has also been taking advantage from the “risk on” trade but it is still traded close to 12-year low around 1.05. Overall the view on the euro hasn't changed. There is still high probability that any rally on the EUR/USD will be used to renew the short position especially that the discussion on parity heats up every day.

Investment banks swiftly update their estimates and bid which one is the most bearish for the common currency. Goldman Sachs claims that till the end of 2017 the euro drops to 80 US cents. Putting it quickly to the Polish ground and assuming that the euro stays around 4 PLN the “greenback” would be worth 5 PLN. Many long term projections are treated by a high level of uncertainty but at the moments of stress they are one of the element pushing the hypothetical slump deeper.

Fed in foucs

Coming back to this week events, the market should be focused on the Federal Reserve meeting. However, now we want to assume that the “patience” is erased. So what other elements are expected to bring attention during the Wednesday's evening?

Firstly, investors would like to find out (either in the statement or during the conference) if the Fed is concerned with strong dollar. When it turns out that the FOMC sees some threats for the inflation or condition for export companies caused by soaring “greenback” it might be a negative signal for the US currency.

Another element which may generate a move on the USD can come from economic projection. It is almost certain that the Fed, comparing to the December estimates, revises GDP higher and the employment lower. Both changes are expected to be dollar bullish.

A question mark is raised regarding inflation especially during 2016. Whether the lower commodities are going to translate into subdued core PCE? If yes and it is revised downward by at least 0.2 percentage point it should push some selling pressure on the USD.

Lastly investors are also expected to look at the median expectations on the interest rates (dot chart). In December they were updated significantly upward with median rate at the end of 2016 reaching 2.88%. If the next year expectations are pushed much higher we might expect it to give another boost to the dollar.

The foreign market in a few sentences

The Monday's session should be fairly calm. It should not be significantly affected by the industrial data from across the pond especially that the weather effect still may be seen in readings. As a result, there is a slim chance that the market may be pushed to new lows today or successfully test the 1.06 level.

Stronger zloty but the franc still above 3.90

The zloty is stronger to most currencies in the morning and the EUR/PLN is quoted around 4.13-4.14. Slightly worse situation is observed on the franc. A significant slide on the EUR/CHF during the Friday's session caused that the CHF/PLN is traded above 3.90 and the incoming hours should not change the situation.

Today it is worth taking a look at the current account data (C/A). Before the weekend the trade surplus published by GUS topped 700 million euro for January didn't spur any action on the market. It is pretty clear that the NBP reading confirms surplus on the trade account what should push C/A toward a small surplus. If the market stays pretty calm it should cause a one zloty-cent appreciation.

The base case scenario till the end of the day should be pretty calm trading on all PLN pairs. However, a steep slide on the EUR/CHF may keep the CHF/PLN above the 3.90 level.

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

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