Daily analysis 22.05.2014

Below 1.3700 on the EUR/USD. Chinese PMI beats the consensus but European fell short of expectations. “Minutes” from the last FOMC meeting. Wiedmann not sure to “act” in June. The zloty remains stable. Manipulation allegations gave the zloty a wide coverage in financial news.

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

• 14.30 CET: Weekly jobless claims from the US (survey 310k).
• 15.45 CET: Manufacturing PMI from the US (survey; 55.9 points.
• 16.00 CET: Existing home sales in the US (survey 4.69 million; seasonally adjusted, annalised.

PMI. FOMC. Weidmann

From the beginning of the week the market has rumored on Chinese and European PMIs. The first were much better than expected (48.3) and jumped to the 49.7 level. Commenting the survey run by HSBC and Markit Hongbin QE, chef on Chinese economists of HSBC wrote that despite a strong rebound of new orders (also for expert) the subindex of employment dropped and the there is still a risk that due to some coolness of the real estate market.

On the other hand, despite a significant reduction of the French numbers (both manufacturing and services index dropped to 49.3 and 49.2 points respectively), the overall picture of the Euro area PMI wasn't that bad (52.5 for manufacturing and 53.5 for services). Summarizing the data, Chris Williamson, chief Markit economists, claimed that a slight slowdown in May does not change the overall view of the region which should finish the current quarter with 0.5% growth. The two major issues with were spotted by Williamson are deflation threats (some help may be on the horizon from the ECB) and France which was named “sick man of Europe” again. According to Markit besides (weak) Paris and (robust) Berlin, “the rest of the region experiences its best expansion since mid-2007”.

In published yesterday evening “minutes” from the last Federal Reserve meeting we could see that the FOMC has started the discussion about how to begin the interest rate hikes with its big balance sheet and all the liquidity on the market. Besides the technical issues (where the consensus was not reached) the FOMC does not seem to be even slightly concerned about the inflation, which is supposed to come back to the 2% target “within the next few years”. Some participants (“a few”) even expressed concerns that the return to 2% inflation could be even more gradual. Such high level of “sureness” is pretty interesting, especially given that April data showed that the CPI reached 2% (0.5% percentage point jump) last month. The preferable price changes index (PCE) has not been published yet (May 30 releases) but if we experience the same rise as in CPI it may reach 1.7%. Thanks to pretty dovish comments from the Fed (maybe connected to recent Dudley remarks that slightly higher than the target inflation won't be a huge problem) we experienced a slightly weaker dollar afterwards.

Reuters published some interesting comments from Seuddeutsche Zeitung interview with Jens Weidmann. The Budnesbank chief claimed that June's cut is not that certain. He also noted that the “Euro-dollar exchange rate had several times in the past at similar levels and on trade-weighted basis, it was only just above the level seen at the beginning of the currency union”. Additionally, Weidmann is against any central bank intervention to lower the government bond yields. He claims that “The current market environment already has the effect of a government bond purchase programme”.

Summarizing, the EUR/USD was able to remain in a fairly narrow range during the key economic data which was published that week. As a result, we probably will stay near the current levels (1.37 plus/minus 50 pips) for the next several sessions until some major news hit the wires (either from economy or from central banks.

Zloty in the headlines

The zloty gathered quite a lot of attention yesterday. The media interest on the Polish currency is a result of a widespread investigation concerning FX fixing manipulation. Financial papers focused on EUR/PLN transactions made by two Commerzbank employees who tried to influence the zloty. According to “Financial Times”, “one person was based in Frankfurt and the other was based in London”. Moreover, “The Wall Street Journal” reports that everything happened in January of 2014 and “the two traders were trying to move the exchange rate between the Euro and the zloty to help a client which it didn't name”. The attempt was, however, not successful due to “Commerzbank's internal control system”. The overall issue has rather been an interesting story which has not had any impact on the zloty and it is even hard to evaluate whether it has anything in common with all the “fixing” allegations.

Summarizing, the zloty should remain fairly stable (despite that we had an attempt to move lower yesterday and higher today). Most transactions will be probably made around 4.18 level. The similar situation should be observed on the CHF/PLN where changes should be limited to 3.42/3.43 range.

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

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