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Daily analysis 20.01.2015

20 Jan 2015 12:52|Marcin Lipka

Thursday's EBC decision is in the centre of attention. Danish central bank decreased its money rates. Worse prognoses of increase in the world, from IMF and EBRD. Real idea of Marek Belka to decrease the burden of franc credit owners. Zloty remains stable on the wave of increased aversion towards risk in the region.

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

  • No macro data which may affect the analyzed pairs.

EBC is still in the centre of attention

The events that took place on Swiss franc, are still strongly influencing the market's sentiments. Despite that the majority of participants expect, that EBC will activate full QE on Thursday's summit, there are however more and more opinions claiming, that either SNB actions were determined by the anxiety of significantly bigger quantitative easing by Draghi, or on contrary – such strong overestimation of euro and drops of European debt's profitability will cause, that EBC will rather leave more “ammunition” for later.

Intuition will rather let down those, who predict extreme scenarios. In order to enforce its credibility, EBC should do exactly what they suggested for few recent months. Activating QE in limits of 500 billion euro, would be the most reasonable solution. It should mostly consist of government bonds and have the range of approximately 12 months. It should also be combined with a clear suggestion of extending the operation, if the inflation will not be returning to its aim. This certainly is no time for experiments.

Of course regardless of what Draghi's decision will be, the market's reaction is practically unpredictable. With such a significant loosening it is difficult to say, what currently is included in common currency's rate, and what is not. Will the speculators want to use he possibility of “squeezing out” the short positions on EUR/USD and will lead to the sudden bounce off? Or on contrary – they will “shut the mouth” of those, that claim QE to be included in prices and will generate another movement downwards, which range will cross even 200-300 pips.

Denmark – another target?

Another consequence of SNB surprising decision, is the situation in Denmark. Central bank, that maintains the rate of EUR/DKK on the level of 7.45 for 15 years, was yesterday forced to decrease the money rates, to the level of minus 0.2%. According to Danske Bank, the monetary authorities in Copenhagen will have to go even deeper below zero (minus 0.3%) already on January 22nd when it comes to deposits. Of course that is if EBC will activate quantitative easing.

Additionally, a part of speculation capital encouraged by the successes on Swiss currency, forces the solution of strong attack, enforcing DKK. What is interesting, just as it happened in case of CHF, no investment bank is really considering the possibility of abandoning the thin corridor of EUR/DKK fluctuations. Similar opinions are also coming from Copenhagen's monetary authorities. They claim, that they have “proper tools” to defend the stable rate.

The extreme scenarios have more supporters. Just like it was in case of EBC. In this case however, one should not seriously consider resignation of stable rate. Especially, that throughout recent 15 years, there was not a moment when it would be endangered. Currently, despite the tense market, the situation is much less serious, than it was in the peak of 2008/2009 crisis, or during Europe's debt problems.

Worse forecasts

In recent hours IMF and EBRD published their prognoses, showing a slower development of most of the countries in Europe and the world. Both of these institutions underline, that the lower proces of energetic resources will have a positive influence on the economies that import oil. However, worse condition of China or Japan, market tensions, or smaller investments of countries dependant from oil's export, will decrease the global growth of GDP for 2015, to 3.5% from 3.8% expected in October 2014.

IMF does not give any detailed information for Poland in its most current update. However EBRD decreased the estimations of growth for our economy from 3.3% to 3.0% y/y. But considering IMF prognosis, in which GDP for our region of Europe increases by 0.1 percent, we should not expect a lower reading that +3.0% for Poland.

Few words about foreign market

The events on Swiss franc are motivating the market's observers and speculation capital, to cause another spectacular movement. However it is very unlikely, that this trick would work. Especially that EBC has a big experience in “putting down fires”. Movements close to the ones observed on franc seem to be extremely unreal, also when it comes to Danish krona, wher the European, as well as Danish central banks, can intervene with whichever amounts.

Reasonable propositions in case of currency credits. Weak zloty

A summit of Financial Stability Committee, will start today at 2 pm. The participants will be the representatives of NBP, Ministry of Finances and the banks involved in credits in franc. According to what chairman Belka said yesterday in TOK FM radio, he will try to force a solution allowing every credit owner, to use the negative money rates in Switzerland. Currently some banks have paragraphs in their agreements, that exclude LIBOR of CHF going below zero.

And though this solution does not fully compensate the increases of francs value in relation to zloty, it should be however a visible element in the value of monthly instalment. Currently LIBOR 3M equals 0.42%. If we will consider the average credit worthy of 100 thousand CHF, 20 years for paying it and margin on the level of 2%, after these hypothetical changes the interest will decrease from current 2%, to 1.6%. Currently the instalment of such credit equals 416 CHF, and after the changes it would be barely 400 CHF. Converting it to zlotys, we receive the savings equaling approximately 70 PLN, which is exactly 1/3 of what was “taken away” by Swiss currency's enforcement.

What is interesting, the future can be even better. The instruments of monetary market indicate, that in 3 months from now, LIBOR 3M can equal even minus 0.8 %. If these expectations would fulfill, interest's decrease could abolish the increase of credit's instalment caused by CHF/PLN appreciation, by over a half.


Rate of LIBOR CHF, FRA 3x6 CHF and the differences between these values


Wykres - libor CHF

Source: Bloomberg, own calculations.

White line, upper left chart, show the current rate of LIBOR CHF. Orange line on upper left chart shows FRA 3x6, which is the rate of LIBOR 3M, which according to the market should be in force in 3 months from now. The left chart below shows a spread between current and future LIBOR 3M. The bigger this difference is, the bigger are the chances for further decrease of money rates, and what follows, further drops of LIBOR are bigger.

Getting back to the national market, we cannot see any will of zloty enforcing in relation to any main currency. The investors are clearly waiting for EBC decision. And though QE in Europe should be theoretically a stron element enforcing zloty in relation to euro, the market's uncertainty and Sunday's elections in Greece however, are holding from taking long positions on PLN.

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

Range EUR/USD 1.1450-1.1550 1.1550-1.1650 1.1350-1.1450
Range EUR/PLN 4.3000-4.3400 4.3000-4.3400 4.3000-4.3400
Range USD/PLN 3.6900-3.7300 3.6700-3.7100 3.7100-3.6500
Range CHF/PLN 4.2800-4.3200 4.2800-4.3200 4.2800-4.3200


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


Range GBP/USD 1.5150-1.5250 1.5050-1.5150 1.5250-1.5350
Range GBP/PLN 5.6100-5.6500 5.5900-5.6300 5.6300-5.6700


20 Jan 2015 12:52|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:

19 Jan 2015 12:43

Daily analysis 19.01.2014

16 Jan 2015 17:07

Afternoon analysis 16.01.2015

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Daily analysis 16.01.2015

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Afternoon analysis 15.01.2015

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