Daily analysis 21.05.2015

The dovish “minutes” from the Federal Reserve can clearly wear off the dollar in the forthcoming weeks. Mixed readings of the PMI from the eurozone. The zloty remains weakened after yesterday's readings from the national economy, which appeared to be significantly weaker than expected.

Most important macro data (CET). Estimations of macro data are based on Bloomberg's information, unless marked otherwise.

• 14.30: Applications for the unemployment benefits from the USA (estimations: 270 thousand).
• 15.45: The industrial PMI from the USA (estimations: 54.5).
• 16.00: Sale of houses on the aftermarket (estimations: 5.23 million).

The dovish Fed lays weight on the dollar

The record from the Federal Reserve's summit in April, clearly shows that the Fed is surprised by the economy's weakness. Additionally, the FOMC members are not certain if the worse activity of the industry and the smaller expenses of consumers' will continue in the forthcoming months, or whether they are just an effect of the severe winter.

Due to this fact, the suggestions of the American monetary authorities concerning the future path of interest rates are incoherent. Two or three members still do not exclude an increase of the money's value in June. However, the majority evaluate that the conditions for monetary tightening, will not be fulfilled by the end of the first half of the year.

The Federal Reserve is still trying to keep the promise that every summit can bring changes to the monetary policy. However, the amount of negative factors appearing in the last few months exclude raising the interest rates before September.

Additionally, if the weakness of consumption, investments, export or the real estate market continues, the end of the third quarter may also lose the status of the base scenario. After all, the Fed emphasized that the decision regarding the first increase must be a result of improving macroeconomic data. Now, however, the expected economic increase for the year 2015 will probably be reviewed below 2.5%, whilst in January the expectations were 3%.

Despite the fact that yesterday's market reaction to the publication of the “minutes” was quite incoherent, the American value should continue to be weak in the forthcoming weeks. Especially if the macro data from the USA will not rebound. In order to see higher readings on the EUR/USD, we will have to wait for the settlement of the Greek matter. Those problems can effectively stop the appreciation of the main currency pair.

The mixed PMI data

Initial Markit's publication regarding the sentiments of logistic managers, brings mixed data. The German data are visibly worse, but the indexes of industry and services from France have slightly improved. The general PMI reading for the eurozone was on a similar level as one month ago.

A comment from Chris Williamson, Markit's chief of economists, is worth noting. In the resume of group readings from the eurozone, he wrote that the current readings suggest “the region to be at a path of increase on a level of 2.0% y/y”. This would be the best reading of the European GDP since 2010. If we would compare it with the expectations from the beginning of the year, and assume that Markit's estimations may appear to be true, the eurozone may increase in a similar tempo as the USA. Just a few months ago, nobody would jump to such conclusions.

If the current trends will be sustained, this fact can translate to a path of the future interest rates. We may be able to see another wave of increases on the EUR/USD, if the market will “catch” it. The only condition that needs to be fulfilled, is settling the situation regarding Greece.

Few words about the foreign market

After receiving quite dovish signals from the Fed, the market will wait for more current comments from the Federal Reserve's members. It is not excluded that tomorrow’s appearance of Janet Yellen, will appear useful in this matter. If the FOMC chairwoman sustains the conclusions coming from the “minutes”, the dollar would be on its way to a short term depreciation trend.

Weak data and the elections

Clearly worse readings of the industrial production (+2.3% y/y vs the expected +5.5%) and retail sales (minus 1.0% vs the consensus of +1.5%) have caused a strong reduction in the zloty. It was difficult to expect such weak data. Even considering a smaller number of labour days, and a different term of this year's Easter holidays.

The elections will also influence on the zloty's condition to a certain degree. However, the reaction of the Polish currency on victory of either President Komorowski (enforcement) or the MEP Duda (wear off) will probably be short and will not cross 0.02 PLN on the EUR/PLN. Even if we will cross the limit of 4.10 for a moment, an exit above this level is not a base scenario for the euro at the moment.

Unfortunately, the PLN wear off impacts negatively on the evaluation of the franc. The Swiss currency has clearly crossed the area of 3.90. During the next few days we will probably stay above this level.

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

Anticipated GBP/PLN levels according to the GBP/USD rate: