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Daily analysis 20.01.2014

17 Jan 2014 13:05|Marcin Lipka

The Chinese data were in line with expectations. Another all-time-lows on the Turkish lira. Czech Republic can join the Eurozone in 2020. The Polish zloty traditionally is stable. The BOP data – export slowed its rising trend in November.

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

  • Besides the market consensus we are also publishing the consensus range. It gives more info how economists predict the incoming data and what kind of impact can be generated from surprising reports.
  • No macro data which can affect the analysed pairs.

China, lira and koruna

The Chinese data which was published during the Asian session was in line with expectations. The economy expanded by 7.7% y/y in the 4th quarter. Moreover the rest of macroeconomic reports were were also close to economists' estimates – industrial production rose by 9.7% (Bloomberg median showed +9.8%) and the retail sales recorded a growth by 13.6% (in line with Bloomberg survey). Commenting the data, chief RBS Chinese economist told the “Financial Times” that “the role of the services sector continued to increase, in line with Beijing's efforts to shift economic growth away form debt-fuelled infrastructure investments”. The EUR/USD didn't react to the data and remained under 1.3550 level.

The Turkish lira has resumed its slide. One dollar on Friday bought 2.23 TRY, but at the beginning of the European session the “greenback” is wroth 2.25 TRY. It is worth to mention that the USD/TRY pair rose more than 25% in the last 12 month. The reasons for the weaker lira has been the same – high double deficit (both fiscal and current account – more than 7% GDP), political issues – almost half of the government was dismissed after the corruption allegations, high companies' debt denominated in foreign currencies and the Federal Reserve withdrawal from the QE operation. There is also an interesting message in today's “The Wall Steet Journal”. The daily financial paper reports that, according to the central bank data, individuals increased their foreign currency holdings by 10% in 2013 whereas corporations increase their deposits by 20%. In the past, when the lira depreciated significantly, the trend was opposite – individuals were selling their dollars to take advantage from higher exchange rate. Regarding all the data it is worth to observe the CRBT decision. Most economists expect that the central bank will leave the benchmark unchanged. However, if it decides to rise the interest rates, than we can expect a relief rally on the lira.

A few days ago, during an interview with “The Wall Street Journal, the Czech Prim Minister Jiri Rusnok suggested that Prague can join the euro zone as early as in 2020. The currency government chief claims that it will depend on the election results which is expected to be held in 2017. Furthermore, Rusnok is expected to become a central bank governor in 2016 which can also speed up the euro area accession. Regarding the local currency the decision is much less significant than the November intervention when the CNB sold korunas worth around 7 billion euro and promised to keep the exchange rate 27 level per the euro.

Summarizing, the EUR/USD slided to around 1.3500 level after the US data (it was not as week as some have expected). On the other hand fairly stable macro reports from China didn't allow the most heavily traded currency pair to fell further. In result the base scenario is a trading at 1.3550 plus/minus 50 pips.

Stable on the zloty. Mixed signals form the BOP

The zloty, traditionally, is rather stable to the euro and has been traded around 4.16 level. The Polish currency didn't react to the BOP data published on Friday. At the fist sight the report published by the central bank was better than estimated – the current account deficit was lower then expected and the trade balance enjoyed a fractional surplus whereas a small deficit was estimated. However, it was the of the good info. The export growth decreased significantly and rose only 1.2% (the average after 10 months was around 6%) and the import fell under the 2012 November level. If the data continues to be soft we can expect that the economic rebound does not have to be as robust as some estimate.

Summarizing the zloty should be quite stable to the euro. Today we have a bank holiday in the US, which can cause that in the afternoon the Polish currency will be waiting for the Teusday's production data.

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

Range EUR/USD 1.3650-1.3750 1.3750-1.3850 1.3550-1.3650
Range EUR/PLN 4.1400-4.1800 4.1400-4.1800 4.1400-4.1800
Range USD/PLN 3.0100-3.0500 2.9800-3.0200 3.0400-3.0700
Range CHF/PLN 3.3600-3.4000 3.3600-3.4000 3.3600-3.4000

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

Range GBP/USD 1.6250-1.6350 1.6350-1.6450 1.6150-1.6250
Range GBP/PLN 4.9900-5.0300 5.0100-5.0500 4.9700-5.0100

17 Jan 2014 13:05|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.

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