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Daily analysis 20.12.2014

22 Dec 2014 12:48|Marcin Lipka

The FOMC members comments confirmed monetary tightening in the US in the middle of the next year. The rouble strengthened significantly to levels unseen since the first half of December. No appetite for Polish the currency. Good gas station research before Christmas travel can save you even half of the PLN per litre.

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

  • No major data which may significantly affect the analyzed pairs.

The FOMC members comments

We are slowly approaching the low volume trading which is observed between the New Year's eve and Christmas holidays. It does not mean low volatility because that period is sometimes used for currency funds to create more uncertainty on a thin market and persuade their strategy as the year ends. Rarely, however, that period of the year changes medium-term trends.

Similar situation may be observed in the following weeks. It seems that the trends started in the middle of the year should be continued in 2015. Still, the monetary policy perspective either in Japan or in the Eurozone will be significantly different to that observed in the US. It was also confirmed by the FOMC members’ statements on Friday and especially by John Williams, who is often regarded as being close to the consensus.

The Federal Reserve President from San Francisco (voting in 2015) told Bloomberg that June is a “reasonable starting point to consider lift-off” The FOMC member also claimed that the “drop in oil prices is very big plus for US next year” and positive outcome for the world.

Williams said that low inflation may delay the monetary tightening but also stressed that the first interest rate hike can occur when the core PCE will be below the 2% target.

Besides the San Francisco Fed's president comments, the investors received also some remarks from Plosser, Kocherlakota and Lacker. The first two represent respectively strong hawkish and uber dovish approach so they will not really be crucial concerning the changes in the policy. Further Jeffrey Lacker (voting in 2015) is regarded as slightly hawkish but taking into the account his most recent view he would accept the mid-year lift-off.

The rouble continues its rally

From the Tuesday's record weak level the rouble strengthened by around 30% to the dollar. It does not mean, of course, that economic problems which are faced by Kremlin disappeared and the next months will be calm on rouble. But it may show that strategy used by the central bank and government payed back despite some heightened tension. It also allowed to decrease the number of speculators due to thin market and extremely high volatility any strategy was difficult to implement.

On the other hand, if the oil prices stay around 60 USD per barrel, the fundamental issues should return and the rouble should return to the sliding trend at the beginning of 2015. The base case scenario currently is USD/RUB around 55-65 level but in case of Bent lift above 65 USD the Russian currency may appreciate toward 50 ruble per dollar.

Foreign market in a few senteces

New lows on the EUR/USD is still a continuation of the Fed's decisions from Wednesday and expectations before the ECB meeting scheduled for January 22nd. In the following days macro calendars are pretty empty and only Tuesday my give some economic reasons to provide short term volatility.

No appetite for the zloty. Gasoline prices

Today's session was a good moment for the zloty to end the depreciation bias. Stronger rouble, bullish equities and correction on the EUR/USD should have contributed to at least 0.01 - 0.02 PLN to the EUR/PLN slide. However, fairly muted attempt ended pretty quickly and in the mid-day the euro costs again more than 4.26 per the euro. It also decreases the odds for slide toward 4.20 on the EURPLN and a period with weaker currency may be extended till January.

Poland faces similar problems with gasoline as the UK does. Gas stations don't want to reduce retails prices even though the oil dropped markedly. Only one significant player represented by the French supermarket chain decided to reduce prices in line with the wholesale fuel cost. As a result the “A” brand gives sometimes a discount of 0.5 PLN to its competitors located nearby. According to the company website and phone call information the unleaded petrol costs between 4.18 and 4.29 per liter around Poland (with the record low price in Bydgoszcz – 3.98) while diesel ranges between 4.22 and 4.30 per the liter. It is worth looking at some gasoline stations locations before driving during Christmas.

Summarizing, the odds for the zloty to finish the year below 4.20 per the euro or 3.50 to the franc has diminished. It seems that short-term term capital hasn't fully executed its strategy and would not allow the zloty to strengthen. It is also possible that we may see another wave of weaker zloty especially Tuesday's retail sales data disappoints. But in the following weeks the base case scenario still should be a slide toward 4.20 on the EUR/PLN.

Expected levels of PLN according to the EUR/USD rate

Range EUR/USD 1.2250-1.2350 1.2150-1.2250 1.2350-1.2450
Range EUR/PLN 4.1600-4.2000 4.1600-4.2000 4.1600-4.2000
Range USD/PLN 3.4600-3.5000 3.4600-3.5000 3.4600-3.5000
Range CHF/PLN 3.4600-3.5000 3.4600-3.5000 3.4600-3.5000

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

Range GBP/USD 1.5650-1.5750 1.5550-1.5650 1.5750-1.6850
Kurs GBP/PLN 5.2500-5.2900 5.2300-5.2700 5.2700-5.3100

22 Dec 2014 12:48|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 Dec 2014 17:09

Afternoon analysis 19.12.2014

19 Dec 2014 12:44

Daily analysis 19.12.2014

18 Dec 2014 17:03

Afternoon analysis 18.12.2014

18 Dec 2014 12:57

Daily analysis 18.12.2014

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