Daily analysis 20.05.2014

Still no major changes on EUR/USD. Comments from the FOMC and EBC close to the market consensus. Stronger Russian rouble, weaker Swedish krona. Focus on Thursday's PMI. Polish industrial production data should not have visible effect on the PLN valuation.

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

• 14.00 CET: Industrial production data for April (Polish Press Agency consensus is +4.9% y/y.

Central banks. RUB and SEK. PMI

The EUR/USD has been traded for a few days in a narrow range and most of the transactions have been made around 1.37 level. We experienced a similar situation yesterday, despite some statements regarding central banks actions.

Starting from Europe, besides Jens Weidmann comments, we also had some remarks from Yves Mersch, executive board member, who said that probability of ECB action in June has increased. Also statements from former ECB board member (2004-2012) Jose Manuel Gonzalez were of similar tone. He suggested both in CNBC and in “The Wall Street Journal” that chances for the action increased for the June's meeting. However, he also stressed that QE is an extraordinary tool and it will be used after other measures are exhausted (meaning interest rate cuts or negative deposits).

On the other side of the pond we had a debate between Dallas Fed President Richard Fisher (voting, hawkish) and John Williams (non-voting, dovish) representing San Francisco Federal Reserve. When the discussion moved toward interest rates it was repeated that the debate on interest rate will probably start in 2015 but Fisher would rather see an actual hike in the first half of the year and Williams in the second.

Moving from the Euro and the dollar for a while, it is worth noting another market themes. Firstly, we are observing more bullishness on the rouble, which is already around 3% higher than at the beginning of the Ukrainian crisis and at the strongest to the dollar in four months. I have emphasized many times recently that if we “clean” the picture from the political crisis, the Russian currency does not have many reasons to depreciate (in contrast to the Ukrainian hryvnia). Higher valuation on the RUB is also a positive sign for Polish companies which have a substantial exposition to the Russian market. Now they don't have to worry so much that due to ruble weakness a demand from Polish goods significantly decrease.

The situation on the Swedish krona is still pretty interesting. After a rebound from recent slump, the SEK lost some value due to weaker than estimated job market (industrial production at the beginning of the month was also weak). It increases the probability that the MPC may lower the rates at the beginning of July (at the last meeting two out of six members were in favor of a cut). As the Riksbank sets its monetary policy every two months, we still have many macro data to come (GDP, production, retail sales and inflation) before any decision is made. However, if the mentioned readings turn to be weak, the market should push the EUR/SEK above 9.10 even before the MPC meeting.

Summarizing, the EUR/USD should price in a significant amount of action planned for the incoming ECB meeting (rate cut and negative deposit at a rate presented in the Bloomberg survey presented yesterday) so only some more accommodative comments may push the rate lower. Besides monetary policy, the incoming PMI readings (Thursday) are also worth noting. The base case scenario are the readings around previous level (neutral for the Euro). However, if we get a substantially lower publication (1 point in Germany or below 50 for French manufacturing), the negative reaction the EUR/USD should be clearly visible and a slide under 1.3650 can be quite probable.

No major changes

As expected, we are observing a fairly calm trading on the local currency market. The zloty is only slightly weaker to the dollar, what is only a result of some minor slide of the EUR/USD. Today's industrial production data will probably not have any visible impact on the Polish pair unless the reading deviate from estimates at least by two percentage points.

We should move between 4.18-4.20 on the EUR/PLN and around 3.43 on the CHF/PLN until the end of the day. I also don't expect that we may move above 3.06 on the USD/PLN. Additionally, with high level of probability we should remain fairly unchanged till the end of the week. Only the USD/PLN may be slightly higher (up to 3.08) in case of European PMIs are short of expectations.

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

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