Daily analysis 16.04.2014

The EUR/USD stabilizes slightly above 1.38 level. Published during the night Chinese macro reports are neutral for the markets. Euro Zone balance of payments. The zloty stabilizes around 4.19 per the Euro.

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

• 11.00 CET: Final inflation data from the euro zone (survey +0.5% y/y).
• 14.30 CET: Housing starts and building permits in the US (survey: 965k and 1.01 million respectively).
• 15.15 CET: Industrial production from the US (survey +0.4% m/m).
• 18.15 CET: Janet Yellen speech. It is possible that the chairwoman will be able to make some remarks regarding the current monetary policy.

The East. China. Data

The EUR/USD on Tuesday traded pretty peacefully. We had few attempts to either push the pair higher or lower but both sides were not strong enough to break the range between 1.3790 and 1.3830. We didn't also get enough direction form macro data. The US CPI was in line with expectations on the monthly basis (+0.1% m/m). However, it is worth to point out that the inflation was at 1.5% y/y (rose by 0.4% comparing to February). The Federal Reserve pays much more attention to the PCE consumer prices, where the most recent reading (February) was at 0.9% y/y. But taking into the account the recent relatively high CPI we can expect that the PCE incoming reading can also significantly exceed 1.0% (markets will deal with it much later). Highly anticipated Janet Yellen speech didn't touch the current monetary policy but today the chairwoman will have a second opportunity to make some remarks on the currency Fed's monetary policy.

Yesterday afternoon the global situation got more complex when news agencies reported that Ukrainian army launched military operation against separatist forces in the east of the country. Global investors are particularly sensitive if the escalation of the conflict may push Russia to cross the Ukrainian border to “rescue” Russian speaking population. However, contrary to the Crimea situation, this time the Kremlin seems to be much more resistant to launch full scale operation. Today we also received confirmation that despite the issues in the East, Russian foreign minister will attend the three-party meeting in Geneva where all sides of the conflict will try to get closer to resolve the most important issues.

Published during the night Chinese data were close to the market consensus. The GDP grew 7.4% in the first quarter of 2014 (median Bloomberg survey was at 7.3%), industrial production rose by 8.8% in march (estimates around 9%) and the retail sales slightly exceeded 12% (expectations at 11.8%). The macro reports are bad enough to push Beijing to launch more aggressive stimulus package, but, on the other hand, they are not good enough to gain confidence needed, regarding the data in the following quarters. Overall, we can conclude that the publication was neutral with a slight “plus” as some economists expected readings much closer to 7.0%. The EUR/USD was fairly unchanged just after the data hit the wires.

The Euro Zone current account still looks pretty healthy. In February countries which share the common currency enjoyed the surplus at 21.9 billion euro. It translated into the record high 12-month cumulative C/A surplus which stands at 2.6% of GDP (147 billion euro, almost 100 billion more than the previous 12-month period). It means that one of the main reason of the Euro strength still should be positive for the common currency.

Summarizing, the EUR/USD will be focused today on the US data and Janet Yellen speech. There is, however, a slim chance that we jump over 1.3900 level or slide below 1.3800 mark. Such solid jump/slide would be only possible if we get really weak/solid data from the US economy and dovish/hawkish remarks from Yellen.

Stable on the zloty

First reports about the Ukrainian army launching military operation in the east of the country pushed the overall risk aversion higher and put some pressure on the zloty. However, when it turned out that Russia is not eager to cross the Ukrainian border, the US markets generated some gains and we ended the day closer to 4.18 on the EUR/PLN.

Bloomberg published yesterday article on weekend Marek Belka remarks during his IMF visit in Washington. The MPC chief said that central bank is “preparing instruments” to intervene on “asset markets of different classes”. The article focuses on possibilities that it can be a result of ECB suggestions that it may launch QE and a soft warning that an inflow of cheap capital could have push the zloty higher and undermine the recovery. However, taking into the account the current economy cycle and the Committee standard monetary policy, “polish QE” is highly unlikely and the Belka remarks were probably only technical/theoretical.

Summarizing, the zloty should be still fairly stable and the incoming hours should not move the local currency more than a quarter of percent in each way.

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

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