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Daily analysis 21.02.2014

21 Feb 2014 11:49|Marcin Lipka

A mixture of macroeconomic data from USA and anxiety of further effects of worse weather causes remaining of EUR/USD on 1.3700 limits. Inauguration of G20 summit. The rouble remains weak. Stabilisation of zloty f 4.17 limits. Hausner on possible increase of money rates in second half of 2014.

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

  • 116.00 CET: Houses sales on after-market from USA (estimations: 4.65 million).

Incoherent data. G20 summit. Rouble

Despite the fact that yesterday's data were not the breakthrough readings, many market's participants were waiting for them. The reason for that was a possibility for getting closer to the theory that previous (worse than expected) macro reports from over the ocean are a result of severe winter. The other option was confirmation of some supposition about slight business cycle cooling off, unrelated to the weather. Significant interest in unit informations from the economy is related to the upcoming meeting of Federal Reserve in March and its decision about exiting from quantitive easing (positive for USA) or breaking this operation for one or two meetings (negative for “the buck”). If the pause in tapering lasts until June, then the cumulated extra value of assets purchase (in comparison to the current scenario that FOMC will cut QE by 10 billion per meeting and will end quantitive easing in October) would be worth about 150 billion USD. That is the reason of some FX participants' anxiety of taking bigger positions on American currency. Those who claim that majority of weak data coming from over the ocean is a result of worse weather gained some advantage on Thursday. In the local business survey made by Federal Reserve Philadelphia (Philly Fed index descended below zero and was minus 6.3 points by the consensus on level of 8 points and surveys division between 2 and 12 points), “majority of slowdowns (in business activity – author's footnote) is a result of winter storms that invaded significant part of the examined area”. In resume for local data, Fed department also notices that, despite the orders, number of shipments and average work time decreased, there was an increase of employment. Companies “expect the production increase in first quarter of the year” and also further production activity expansion in upcoming 6 months. Much more doubts concerned the PMI index. Industrial “Index of Logistic Managers” for USA prepared by Markit (its recognition is much smaller on the other side of the ocean than recognition of ISM index which has a many years of tradition; their examination method and results presentation is however similar) increased to barely 4 years maximums and was 56.7 points (reading from January was 53.7). It is worth noticing a clear jump of production's subindex and new orders, and also another improvement in employment component. Chris Williamson, chief of Markit economists, wrote in his data comment, that “while strong PMI reading may partly be a result of taking off after temporary worse data from the beginning of the year, the future growth (of economic activity – author's footnote), however, is possible in upcoming months and suggests, that economy's condition looks solid”. Data on consumers' inflation caused least disturbances. The result of +0.1% m/m and 1.6% r/r puts it in the limits of consensus (Fed however, uses the PCE index in its prognoses – goods' basket has a different composition and is updated more often – that are currently shaping in areas of 1%).

When one concentrates on matters of Ukraine, it is also worth paying attention to Russian rouble's condition. Its value in comparison to the basket consisting of dollar and euro decreased by about 10% since the year's beginning and the EUR/RUB pair achieved the highest levels in history during previous days. I wrote many times about non-optimistic perspectives for Russian economy (most of all about the weakening economic growth and constantly relatively low prices of raw materials). However, as today's “The Wall Street Journal” notices, investments in January have clearly decreased (by about 7%), while its growth was expected. We can read in “WSJ”, that the decrease might be partly a result of rouble's depreciation, and partly also the weather effect as the building sector decreased by 5.4%. It is hard not to connect the negative attitude towards rouble with the Ukrainian trouble. Hryvna as well as rouble, lost about 10% in relation to foreign currencies since the beginning of the year. However, the economic situation of Moscow is much better than that of Kiev and when the moods in the region will calm down, RUB should work off the losses relatively faster than UAH.

In conclusion, we still do not have a decision on EUR/USD. Aversion to American dollar is dominant amongst some of the players and the anxiety of possible holding the exiting from quantitive easing is effectively stopping the part of FX player, from putting their capital in “the buck”. G20 summit, which is now beginning, should not have a bigger influence on currency market. Developed markets are clearly not feeling any responsibility for the problems of some emerging markets and no common activities will be announced. The main message will probably be a general will to keep up the world's economic growth. Beyond the official protocol, the opinion about necessity of making reforms in emerging markets countries and not blaming the main players for monetary policy's imbalance will dominate.


According to the expectations of most of market observers, Polish zloty stabilized in limits of previous balance limits – 4.17 on EUR/PLN. Out of the news coming from Poland, Bloomberg's interview with professor Hausner is worth quoting. This representative of Monetary Policy Council (considered as a neutral member) said that “tightening of monetary policy is somewhere on the horizon, probably in second part of the year, but I am not certain if it will really occur”. Hausner also added that “the later we will increase the money rates, the better, because it will allow holding relatively strong economic growth”. According to Hausner, GDP in whole year will increase by about 3.5% and in two last quarters we have a chance to achieve a result in areas of 4%.

In conclusion, base scenario for the end of the week is to hold the EUR/PLN rate in limits of 4.17 with the inclination of 0.01 PLN on both sides. Situation in Ukraine can still have some influence on zloty. However, hypothetical calming down of the situation will not lead to its significant enforcement, because current rate is close to the levels in which taking off caused with conflict's escalation occurred.

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

Range EUR/USD 1.3550-1.3650 1.3650-1.3750 1.3450-1.3550
Range EUR/PLN 4.1400-4.1800 4.1400-4.1800 4.1400-4.1800
Range USD/PLN 3.0300-3.0700 3.0100-3.0500 3.0600-3.1000
Range CHF/PLN 3.3800-3.4200 3.3800-3.4200 3.3800-3.4200

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

Range GBP/USD 1.6450-1.6550 1.6550-1.6650 1.6350-1.6450
Range GBP/PLN 5.0500-5.0900 5.0700-5.1100 5.0300-5.0700

21 Feb 2014 11:49|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.

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