Daily analysis 18.11.2015

The market stabilizes before the minutes publication. Bloomberg survey on the SNB future interventions aiming to weaken the Swiss franc. The dollar is again at record levels towards the PLN. The S&P on domestic currency.

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

• 14.30: The situation on the US real estate market (building permits: survey 1.15 million on an annualised basis; housing starts: 1.16 million on a seasonally adjusted annualised basis).
• 20.00: Minutes from the October FOMC meeting.

Minutes in focus

Before today's minutes there is one major question. What kind of message the Fed wanted to send to the markets at the end of October. The members were obviously aware of when the details were scheduled to be published and particularly that this document would be scrutinized.

In our view, Janet Yellen and her colleagues would firstly like the markets to be aware of the interest rate hike next month. If the surprise factor is low it would mean that the FOMC has been successful in communicating its decision and further action may also go smoothly. As a result, we should expect many suggestions that “most” members/participants are in favour of normalising the monetary policy.

It is possible that the discussion on the pace of tightening may also be regarded as fairly hawkish. Despite the fact that most members are still expecting gradual hikes and that the benchmark rises may be paused if the economy slows, some more hawkish opinions may be noted in the discussion. In September, 8 out of 17 FOMC participants were expecting the rates to be above 1.5% at the end of 2016.

There is a fairly high probability that the situation around the world will be described much better than in the September minutes. The fears about China have been mostly abated. Moreover, capital markets also calmed down. As a result, the world's situation can be evaluated as neutral and as a negative for dollar performance.

On the other hand, the element which may be negative for the US currency is an intense discussion regarding the dollar strength. It put pressure mainly on export. Recently, Eric Rosengren, who is scheduled to vote in 2016, has suggested that the further significant appreciation of the USD may slow the monetary tightening pace.

Overall, the minutes should be fairly hawkish. Consequently, the Fed's message should push the dollar higher, but the move might not be strong enough to cause the EUR/USD to slide below 1.0600. Moreover, the stronger dollar move can be short lived as most of the positive messages on the US currency seem to be already priced in. For further downward pressure on the EUR/USD we may have to wait for the EBC and Fed meetings in December.

Survey regarding future SNB actions

There is a discussion about whether the Swiss National Bank (SNB) will be able to weaken the domestic currency to prevent the EUR/CHF fall in the case of further monetary easing from the ECB. According to the survey run by Bloomberg, economists claim that the SNB has some room to increase the purchase of foreign assets to push the franc lower.

On average, the survey shows that the SNB may add 165 billion francs to its balance sheet to push it towards 120% of the GDP. Economists also expect that the SNB may lower the benchmark by another 50 bps from minus 0.75% to minus 1.25%.

Theoretically, the measures, if realised by the SNB, may be enough to prevent the franc from strengthening towards the euro. However, it is worth noting that in mid January nobody expected that the SNB may resign from keeping the EUR/CHF above 1.20. As a result, the CHF appreciation towards the euro is a real, although currently unlikely, scenario.

The foreign market in a few sentences

There is a higher probability that today's minutes may be more hawkish than the market expects. However, there may not be enough room for further dollar appreciation and it is possible that for a more significant EUR/USD slide, market participants would have to wait till December.

Dollar briefly touched 4.0000

Yesterday, according to the Bloomberg data, the dollar touched exactly 4.0000 PLN. What is interesting, this value did not exceed by even 1 pbs by the end of the day, because afterwards the USD/PLN dropped. But if today's minutes turn out to be more hawkish and the EUR/USD falls below 1.0600 then the 4.00 level on the zloty is expected to be breached.

There are quite neutral comments from the S&P on the zloty. Risk for the zloty are “fairly balanced” and “net-net, the Polish central bank is likely to stay put and not do much on the rates” as the Fed is expected to tighten the monetary policy while the ECB is scheduled for easing according to Jean-Michel Six, chief EMEA economist at S&P. If such a scenario turns out to be true and the new MPC is not eager to cut the benchmark, it will push the zloty slightly higher as the market has already priced in a 25 bps cut.

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

Anticipated GBP/PLN levels according to the GBP/USD rate: