Daily analysis 21.03.2014

The EUR/USD remains under pressure. More opinions on Wednesday's Jenet Yellen conference. The worst week for Chinese currency in 20 years. Four FOMC members statements are due today. No significant pressure for the zloty despite hawkish comments from Fed's chairwoman.

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

• 16.45 CET: St Louis Fed president James Bullard speaks.
• 18.45 CET: Dallas Fed president Richard Fisher speaks.
• 21.30 CET: Minneapolis Fed's president Narayana Kocherlakota speaks.
• 23.30 CET: Federal Reserve governor Jeremy Stein speaks.

Opinions. Yuan. FOMC

There are still many opinions regarding Wednesday's Janet Yellen conference. Market observers mainly try to evaluate whether the Fed's chairwoman deliberately brought “6 months” period, or it was just a slip of the tongue. Some argue that such an experienced person who was responsible for the Fed's communication and has been connected to the Federal Reserve for years did not mention the “6 months” by accident. She just wanted to send a message to the market that the economy will be performing much better in the following quarters and therefore some monetary tightening is actually on the horizon. Others, however, might argue that she was the last person who wanted to close herself in the certain period bracket and her remarks were unintended. If we look back once again to the conference, the second explanation may be more relevant. She just revealed what kind of time frame was discussed during the FOMC meeting and the “considerable period” is really 6 months, but she shouldn't say that and in result it was a communication mistake. It is also worth to analyze at what occasion the phrase was said. Yellen got pretty obvious question for a Reuters reporter (on whether QE ends this fall or next year fall). Then the reporter asked about what is a “considerable time”. A few probably expected a direct answer, but maybe Yellen was pretty relaxed with the first question and it was already second part of the conference, so she just went straight forward and answered it

Regarding the recent Fed's conference, it will be really interesting to get opinions for other FOMC members. Luckily, we have 4 FOMC participants speeches – James Bullard, Richard Fisher, Narayana Kocherlakota and Jeremy Stein. Despite that both Fisher and Kocheralkota have the right to vote this year, they are both regarded as respectively strong hawk and dove. Therefore, much more attention will be put on James Bullard remarks and Jeremy Stein opinion who are much closer to the Fed's consensus. If they confirm Yellen “6 months”, then we should expect further dollar appreciation. On the other hand, in case of some attempt to play down the chairwoman time frame, we should expect some downward pressure (but not changing much the sentiment).

It is getting much more interesting on the yuan case. According to Bloomberg, USD/CNY pair touched 6.23 level. It is not only the highest rate in a year, but also it was the worst week for Chinese currency in 20 years. Despite that the percentage changes are not dramatic (around 4% since mid January) we have to remember about all the derivative contracts purchased by Chinese export companies or speculators who are getting hit anytime when the USD/CNY is rising.

Summarizing, the FOMC members speeches will be the main events today. If the mentioned earlier participants confirm Yellen remarks, then we can slide even toward 1.36 range. On the other hand, when they choose to “play down” her “6 months” then the EUR/USD can return to the 1.38 range. It is also worth to remember about Monday's PMIs, especially the German reading. Market observers seem to be quite optimistic about the data, but we can have a similar case on PMI that we had at ZEW (Russian-West issues can push down the index).

The zloty remains in a solid shape

The zloty, after a significant slide caused by the Federal Reserve meeting, has cut most of the losses and the EUR/PLN returned under 4.20. If the local currency “survives” the dollar strength (when it comes), then we can expect that the scenario presented yesterday does not have to materialize. However, we have to wait some time, at least till the next NFP reading, and other March data from the US economy to get a solid confirmation that the winter weak data was mainly a weather casualty.

Polish currency got also some lift from Andrzej Braktowski remarks in “The Wall Street Journal”. Despite that he is regarded as a stronger dove in the MPC he said that “I would like the cycle to begin early and proceed at a very slow pace of 0.25 percentage-point increases every two, three months”. He also added that “a rate increase in the fourth quarter is still possible, although the probability that the monetary policy cycle will begin in the first quarter of 2015 is higher than before”.

Summarizing, the PLN is supposed to be traded slightly below 4.20 level today. We should not rise above 3.45 on the CHF/PLN and 3.05 on the USD/PLN. I would also be quite cautious before Monday's PMI index for the euro zone. Weak readings may push the zloty lower.

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

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