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Daily analysis 18.02.2015

18 Feb 2015 12:26|Marcin Lipka

Greece and Ukraine in the spotlight. Suggestions on SNB interventions pushed the EUR/CHF towards 1.0700. “Minutes” from the most recent Fed meeting may be pretty hawkish. Industrial production and retail sales from Poland.

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

  • 14.00 CET: Retail sales from Poland (survey: +0.9%).
  • 14.00 CET: Industrial production from Poland (survey: +2.2% y/y).
  • 14.30 CET: Housing starts in the US (1.07 million). Building permits (1.067 million).
  • 15.15 CET: Industrial production from the US (survey: +0.3% m/m).
  • 20.00 CET: Minutes from the January Federal Reserve meeting.

Greece and Ukraine

Today, according to unofficial reports, Athens may present a new financial plan to keep its economy afloat. It is supposed to be 6-month loan which will allow Greece to continue the negotiations on more sustainable rescue plan. There is still an ongoing discussion between the creditors and Tsipras government what financial conditions are supposed to be introduced after the current program ends on February 28th. If none of the solutions is agreed, then the risk for Grexit increases markedly.

Regardless of how we call the new program, the wider issues remain unchanged. The new prime minister still wants to withdraw from previous government commitment and loosen the fiscal discipline, increase public payrolls and at the end cut the overall debt level. On the other hand, the public creditors are not eager forgive any part of debt and still want to force Athens to remain on the austerity path.

Besides the new loan offer from Athens, we are also having the ECB meeting regarding Greece. Two weeks ago the decision from European Central Bank on halting the direct liquidity to Greek banks spurred some nervousness on the EUR/USD. Today, however, I would not expect any major decision from the central bank especially that the negotiations are on the way.

Investors are also still focused on Ukrainian issues. Yesterday, first time after the Minsk agreement, the Russian president directly responded to the question on war in the eastern Europe. Besides some propaganda statements he seemed to be pretty convinced that when Kiev forces surrendering Debaltseve town, the separatists would be more eager to agree on cease fire. It should also bring more probability on more sustainable truce in the East. On the other, hand if both sides fail to withdraw heavy weapons the conflict may become really uncontrollable.

Swiss franc the weakest since a month

The Swiss currency wakened markedly after Thomas Jordan speech at the University in Brussels. The SNB chief claimed that the CHF is significantly overvalued and the negative interest rate “is set to have a corrective effect on the Swiss franc's valuation”. Additionally, the SNB will remain “active in foreign exchange market, should this prove necessary in order to influence monetary conditions”.

The EUR/CHF appreciation towards 1.07 is a good message for those whose debt is denominated in francs. Due to the weaker Swiss currency, we are observing lower valuation on CHF/PLN and the probability of a slide below 3.90 level has risen recently. The main threats to this trend are more issues with Greek debt and worsening situation in the East.

Foreign market in a few sentences

Besides the developments in the East and another part of Greek drama, the market is also supposed to focus on Fed's minutes today. The FOMC official probably tried to evaluate whether the improving economy warrants to scrap the “patience” phase and give some clearer indication that the interest rate can be sooner than later. The broader the discussion on the issue, the more odds for a dollar appreciation. But taking into the account a long consolidation period the impulse may not be enough to push the EUR/USD below 1.1300.

Waiting mode on the zloty

The local currency has quite a set of data to digest. Firstly, the news regarding Ukraine and Greece. If the full cease fire is implemented than we may see some PLN appreciation. However, taking into the account the Greek case we should not expect any solution today despite rumours on the new initiative from Athens.

Another element which may push the volatility higher is the macro calendar. Industrial production and retail sales data are scheduled to be published at 14.00 CET. The market consensus expect fairly muted readings and there is a threat that one of the figure may fall below zero on the yearly basis. It would be a negative signal for the PLN especially taking into to the account March MPC rate decision.

Overall the base case scenario for the zloty is EUR/PLN below 4.20 and the franc should not move far from the 3.90 level.

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

Range EUR/USD 1.1250-1.1350 1.1150-1.1250 1.1350-1.1450
Range EUR/PLN 4.1600-4.2000 4.1600-4.2000 4.1600-4.2000
Range USD/PLN 3.6600-3.7000 3.6900-3.7300 3.6500-3.6900
Range CHF/PLN 3.9000-3.9400 3.9000-3.9400 3.9000-3.9400

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

Range GBP/USD 1.5350-1.5450 1.5250-1.5350 1.5450-1.5550
Range GBP/PLN 5.6500-5.6900 5.6300-5.6700 5.6700-5.7100

18 Feb 2015 12:26|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:

17 Feb 2015 17:34

Afternoon analysis 17.02.2015

17 Feb 2015 13:23

Daily analysis 17.02.2015

16 Feb 2015 17:24

Afternoon analysis 16.02.2015

16 Feb 2015 13:29

Daily analysis 16.02.2015

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