The Fed remains fairly hawkish after October 'minutes'. Weak data from Europe pushing the common currency lower. Another 7-year lows on yen despite better trade data. Decreasing odds for 'gold initiative' only briefly weakened the franc. US inflation in focus. The zloty is not able to generate a stronger move. Industrial production from Poland.
Macro data (CET- Central European Time). Survey is supplied by Bloomberg unless otherwise noted.
- 14.00 CET: Industrial production from Poland (survey: +1.4% y/y).
- 14.30 CET: CPI reading from the US (survey: 1.6% y/y; range between 1.4% to 1.7%).
- 14.30 CET: Weekly jobless claims form the US (survey: 284k).
- 15.45 CET: Preliminary PMI reading form the US (survey: 56.3).
- 16.00 CET: Existing home sales from the US (5.15 million, seasonally adjusted, annualized number).
Fed. Europe. Jen. Franc. Inflation
As we suggested in recent days the assumption that October 'minutes' may be as dovish as September's was flawed. The latest discussion during FOMC meeting confirms that monetary policy makers are not really concerned with the stronger dollar threats from abroad.
The greenback didn't find a reason to weaken do to fairly relaxed approach toward situation on the markets and no discussion on conditions which may warrant a longer QE (October was pretty volatile month and Bullard even suggested a possibility to extend the purchase program). Am interesting remark was also presented regarding the fact that lower gasoline prices may be an offset to the slower demand from abroad.
Overall we should conclude that the 'minutes' were pretty close to the statement findings published three weeks ago. The Federal Reserve seems to be on the path to hike interest rate around 2nd/3rd quarter of 2015. It was also confirmed by the EUR/USD behavior which after a brief jump ended the day fairly flat.
There was a significant chance to generate rebound on the EUR/USD today but due to weak data from Europe it failed short of expectations. The disappointing readings came not only from France (manufacturing: 47.6 points vs expectations 48.8), but also from Germany which touched the expansion/contractions line at 50 (survey showed 51.5).
In a preliminary Markits surveys both for manufacturing and services from eight euro zone countries we can read that the single currency area may only grow around +0.1/+0.2% in the last Q4 of 2014. Additionally, according to the chief Markit economist Chris Williamson 'the deteriorating trend in the surveys will add to pressure for the ECB to do more to boost the economy without waiting to gauge the effectiveness of previously announced initiatives'. The EUR/USD after the PMI hit the wires dropped toward 1.25 even.
Recent hours were again interesting on the USD/JPY. The Japanese currency continues its depreciation move despite better than estimated macroeconomic data (higher than estimated trade surplus). Today the pair tested even 119 level. The situation on the yen is almost like a currency crisis with the JPY dropping 11 percent in a month (the rouble dropped only a few percentage points more).
Yesterday in early afternoon we had a slight rebound on the EUR/CHF. It was generated by publication of a new survey regarding the gold initiative. According to the opinion poll conducted by public media company SFR 47% is against the project and 37 favors changes in the reserve holdings. The EUR/CHF correction was, however, short-lived and the pair returned fairly quickly toward 1.2010. It may be a good indication that even in a scenario when 'no' voters win the franc does not have to weaken (despite that earlier appreciation was caused by a fear concerning the gold project).
Summarizing, we still have to wait for the inflation data from the US. The CPI readings should be a key mover for the EUR/USD. Investors still may assume that the consumer prices may fall below the expectations and it can put some pressure on the dollar. However, the surprise will have to be pretty strong on the downside (1.4%) to give enough arguments against the greenback.
The zloty has not been able to generate a significant move. It was clear during the morning session today. Investors were a bit tricked whether today's German data should support the PLN (close to the QE in the euro area is positive for the Polish currency) or weight on the zloty (worsening European situation can push the local MPC to cut rates).
Afternoon reading can be helpful to resolve the dispute. The industrial production consensus is around 1.5 y/y. Taking into the account the recent market mood the data will have to be pretty solid (at least +2.5%) to push the EUR/PLN below 4.21 for longer. On the other hand a slightly weaker number is a good argument for the PLN to weaken toward 4.22-4.23 to the euro and 3.52 to the franc.
Expected levels of PLN according to the EUR/USD rate:
Expected GBP/PLN levels according to the GBP/PLN rate: