Daily analysis 20.02.2014

A series of negative information for EUR/USD – slightly hawkish „minutes”, weak PMI from China and Europe and also further anxieties in Ukraine. All of these factors cause, for now, relatively small reduction of prices of main currency pair. Zielońska-Głębocka on possible modification of monetary policy. Zloty is getting weaker under the influence of international factors.

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

• 14.30 CET: CPI inflation from USA (estimations: +0.1% m/m; with exclusion of food and energy +0.2%).
• 14.30 CET: Weekly applications for unemployment benefit in USA (estimations 335 thousands).
• 14.58 CET: Industrial PMI from USA (estimations 53.5; however, the market concentrates significantly on information for similar ISM index).
• 16.00 CET: Industry's condition from Philadelphia region (local Fed survey); estimations on level of 8 points; consensus division between 2.0 and 12.0.

FOMC. China. Europe

Yesterday's evening highlight was the publication of notes from previous Federal Reserve summit. First of all, we should notice that previous decisions under chairmanship of Ben Bernanke were taken in 28-29th January, when only payrolls published in the beginning of the year were decisively worse than estimated. Since then though, we received another weak report from the labour market (without reviewing the previous one), retail sale and industrial production below expectations, and also New York's Fed data about wearing off activity in the region (thus not unusually strong tone of the notes). Getting back to “minutes”, we should notice few trends. First of all, Federal Reserve is certain that until the macroeconomic situation in USA will not clearly change, FOMC will remain on the current path of quantitive easing exiting. Second of all, the discussion about certain modification of forward guidance carries on. It will probably go in the direction of defining much bigger amount of economic indexes and not only concentrating on concrete level of unemployment (currently 6.5%) and inflation (reviving it and at the same time not allowing its growth above 2.5%, in mid-term perspective). However, Federal Reserve did not reveal any details on when should it occur or what will the details of this operation be. The notes contained also some surprising information (one pro- and the other one anti-USD), in which the balance preferred the dollar optimists. For the first time since very long time, two (out of 17 current members) claimed that “relatively quick increase of money rates could be desired”. On the other hand, also two representatives of FOMC claimed that because of continuation of inflation's low readings (PCE in areas of 1% - author's footnote) and vacant workforce supplies, asking a question about necessity of further quantitive easing exiting is needed (but maybe not at this moment). As a result, one might claim that FOMC was a bit more hawkish than expected (especially because of the topic of possible money rates raising).

After “minutes” publishing, EUR/USD got slightly weaker, but worked off most of the losses during Asian session. Even very weak data from Chinese economy was not any obstacle in its increase. PMI from China descended to a level of 48.3 points and that was the worse reading since 7 months. Hongbin Qu, chief of Chinese economists, wrote in his data comment for HSBC that PMI got weaker again, which was the effect of new orders and productions decrease. Qu claims, however, that the politicians from Beijing “should and can improve the policy (economic – author's footnote) to keep the growth (economic – author's footnote) on constant level (7.5% - author's footnote) throughout the whole year.

Data on industry and services that came from Europe in the morning, were also not optimistic. Only the German “index of logistics managers” for services increased. It also caused that the reading for this sector risen in whole Euro Zone. Comparing to January, we witnessed the descend for our western neighbour industrial PMI (from 56.5 to 54.7) and clear deepening of French economy's negative situation (service PMI descended to 46.9 points, which means 9 months lasting hollows and its industrial equivalent descended to 48.5 from January's 49.3). After these reports, EUR/USD could not stand the decrease pressure and descended by about 50 pips to the areas of 1.3700.

In conclusion, despite decisively negative data, the reduction of prices on EUR/USD is relatively small (around half of figure). Investors are clearly unwilling to take long positions on dollar, still fearing for another worse data form American economy. That is why it is worth observing today's macro reports from the other side of the ocean and market's reaction. Today's base scenario is still moving in the areas of 1.3700, but with bigger probability of descends than growths.

PLN further wearing off

The national currency is still under the influence of situation in Ukraine and deteriorating sentiment in the region. One should notice that it is especially Hungarian forint that is clearly wearing off. EUR/HUF pair noted today new annual records and is getting closer to the levels unseen since the breakthrough of 2011 and 2012. It is also testing the records of crisis' culmination in 2009-2009.

Yesterday's data from industrial production (increased by 4.1% and seasonally equalled by 6.3%) confirm the systematic improvement of Polish economic situation. However, Wednesday's statement of professor Zielińska-Głębocka was more important from the market's point of view. In the interview for Reuters (published on Obserwator Finansowy website) this member of Monetary Policy Council stated that in April the Council may decide will potential changes in forward guidance occur. She also gave a hint, that the Council is considering the decrease of “tips” period from six to three months. Zielińska-Głębocka's statements can be taken as hawkish, especially that she is considered to be moderately dove.

In conclusion, today's base scenario for zloty might be a slightly increased variability. However EUR/PLN division between 4.16-4.19 should not change. The zloty will also follow the news from behind the eastern boarder. Understanding in Ukraine should enforce our national currency and further escalation of conflict will wear it off (but temporary without testing of 4.20).

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

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