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Daily analysis 21.05.2014

21 May 2014 9:39|Marcin Lipka

EUR/USD still remains in the areas of 1.3700. More statements from the Federal Reserve representatives. The Australian dollar falls. The production data seemingly as expected. Zloty remains in a thin division of fluctuations.

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

  • 16.30 CET: Appearance of Federal Reserve chairwoman, Janet Yellen.
  • 20.00 CET: “Minutes” from the previous Fed summit.
  • Federal Reserve and AUD

    Another day with a very limited fluctuation on the main currency pair is behind us. Again we have been moving in a very small distance from the level of 1.3700. However, it is not excluded that the second part of the week will bring some more excitements, especially if the macro data from China and Europe are below expectations.

    Yesterday's statements from two Federal Reserve representatives, William Dudley and Charles Plosser, hit the wires. Definitely the remarks of the former were more important. Chairman of New York Fed (always voting, dovish, with views close to the chairwoman, currently second most important person in American monetary authorities) stated that “the probable tempo of interest rates increases will be slow”. He also sustained the opinion of Federal Reserve dovish wing by saying, that “if the inflation begins to cross the level of 2% only slightly and the unemployment remains clearly above the level signifying full employment, then the matters of labour market will dominate (the monetary policy – author's note) because we will be more distant from the goal, when it comes to unemployment, than the increase of prices” (in short, we can allow ourselves for a slightly higher inflation in order to stimulate the increase of employment – dovish signal). During the Q&A part Dudley also said (according to “WSJ”) that nobody knows when the interest rates increase in USA will occur, although at the end of his speech he noticed, that the market's expectations, as well as March indications of FOMC members show that the increase of money value should take place in mid 2015 (prolonging the zero interest period will be more effective since there is a wide consensus concerning the date of first raises).

    Significantly less exciting information were provided by Charles Plosser. Philadelphia Federal Reserve representative (voting this year, hawkish) claims that the real estate market is in better condition than the data indicate. He stated that smaller sale of houses is caused rather by the problems with the supply than weaker demand. It is indicated among others by prices increase. His remarks on monetary policy, however, were quite short (the speech concerned mainly the real estate market) and did not bring any new information.

    Since few days we have a visible reduction of Australian dollar's price. The “Aussie” losses have at least few reasons. First of all, there is a threat that due to a smaller number of investments in mining sector we can observe a lower economic growth this year. Another reason is the recent suggestions from Reserve Bank of Australia about a possible outflow of capital (although this fact can be taken rather as an attempt of currency's weakening, what has been emphasized many times as a goal of RBA). Apart from that, information about the decrease of iron ore value below 100 USD per tone and a possible rating's decrease by S&P to the level of AAA were on the headlines. All of these information put the pressure on the “Aussie” and it is not excluded that we can withdraw in the areas of March levels of variability (0.90-0.91 on AUD/USD).

    In conclusion, despite the limited variability in recent days, it is worth remembering the macro data upcoming in following hours. Today these would be Janet Yellen speech and “minutes” from the previous Federal Reserve summit (watch out for any suggestions postponing the basis term of interest rates raising) and tomorrow night the PMI from China and Euro Zone (if the threat of worse readings would comes real, we can expect a fall below 1.3650).

    Data close to the consensus

    The industrial production data published yesterday, were accordant to expectations (+5.4% r/r vs estimations on level of 4.9% r/r). According to Central Statistical Office information, industrial manufacturing is developing in a relatively fast tempo (basic component of production's reading; +7.3% r/r). We can also be glad because of maintaining two-digit (+12.2% r/r) increase of building sector, although it is also worth noticing, that this sector of economy is still moving below the results recorded in 2012.

    According to expectations, yesterday's publications had no transfer on the local currency market and the zloty remained in the areas of recent fluctuations' levels through whole day. A similar situation should take place also today, when the Polish currency will be recorded close to 4.19 per Euro and 3.43 per franc. More variabilities and possible PLN weakening in relation to USD is possible tomorrow in case when the publications will be worse than the estimations of PMI readings (especially from the Euro Zone).

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

    Range EUR/USD 1.3650-1.3750 1.3750-1.3850 1.3550-1.3650
    Range EUR/PLN 4.1600-4.2000 4.1600-4.2000 4.1600-4.2000
    Range USD/PLN 3.0400-3.0800 3.0200-3.0600 3.060-3.1000
    Range CHF/PLN 3.4000-3.4400 3.4000-3.4400 3.4000-3.4400

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

    Range GBP/USD 1.6850-1.6950 1.6950-1.7050 1.6750-1.6850
    Range GBP/PLN 5.1100-5.1500 5.1300-5.1700 5.0900-5.1300

    21 May 2014 9:39|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:

20 May 2014 11:56

Daily analysis 20.05.2014

19 May 2014 12:13

Daily analysis 19.05.2014

16 May 2014 12:02

Daily analysis 16.05.2014

15 May 2014 12:11

Daily analysis 15.05.2014

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