Daily analysis 22.07.2015

Yesterday's changes on the EUR/USD took place mainly due to the changes on the market of the American debt instruments. No problematic consequences should come from today's voting in the Greek parliament. Will the Czech krona become the second franc? The zloty remains stable to the euro.

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

• 16.00: Sale of houses on the secondary market in the USA (estimations: 5.4 million, the reading is annualized and seasonally equalized).

Dollar is weaker on calm market

Yesterday's session on the currency market was interesting. No macro data, not much information of a geopolitical nature, and a break in comments from the Federal Reserve representatives, suggested that trade would be rather calm. The EUR/USD moving towards 1.0860-70, was also nothing unusual. It could be explained by the confident gains of the long positions on the dollar.

However, the situation changed after the markets in the United States opened. In the morning, New York time, profitability of the 10-year-old treasury bonds began to clearly decrease from a level of 2.4% to the area of 2.32%. It caused a clear wear off of the American dollar in relation to the global currencies and also provoked the EUR/USD to go above the limit of 1.0900.

Eventually, the level of 1.0970 was reached in the evening, Polish time. The last move was probably caused by a so called “squeeze” of the short positions on the EUR/USD. It means that the investors were forced to buy back the main currency pair due to increasing losses and issues regarding the management of risk.

However, it is currently unlikely that yesterday's move will be the beginning of a more constant wear off of the American currency. One of the reasons is next week's meeting of the Federal Reserve, which can bring a clearer answer regarding the monetary policy tightening in September.

Voting in Greece

Today the Greek parliament should accept the regulations regarding the changes in the civil law and regulate the matters related to ordered liquidation of the commercial banks. It is very likely that the above regulations will be accepted by the parliamentarians.

It is also possible that Tsipras can take advantage of this voting. It will happen if some of the Syriza members who previously voted against the increase in VAT rates, will now support the government. However, it is still unknown as to when the parliament will vote over more controversial projects – reform of the pension system, the labour market, privatisation, or reduction of costs of public administration. The majority of these matters should be however established by 6 August. According to Bloomberg, negotiations between Greece and its creditors should end on that day.

Is the Czech krona the second franc?

In November 2013 the Central Bank of Czech Republic decided to keep the krona above the level of 27.00 per euro. Last week the demand for the Czech currency increased enough to perform the first wear off on the CZK for 2 years.

The CNB announcements say that the bank will use the currency rate as an element for conducting the monetary policy, until the end of 2016. It also promises to keep the price at least 27 krona per euro until the mid of 2016.

However, the Czech economy accelerated significantly in the few last quarters. Prognoses for the forthcoming years are also relatively positive. According to CNB, in 2016 the GDP will grow in the tempo of 3.2%, unemployment will decrease to 5%, and the nominal increase in salaries will be 3.9%. Considering a significant surplus on trade account, this may result in a pressure to enforce the currency.

The market began to speculate about the CNB behaving like the Swiss National Bank in January this year. However, there is a small chance for the “Swiss option” to repeat itself. The monetary authorities of the SNB were afraid of significant incomes of the wallet capital in the scenario of increase in aversion towards risk and quantitative easing from the EBC. If it was only about a surplus on trade account, the SNB would certainly keep its promise regarding the CHF rate. Thus, the chances for the CNB to break their promise of keeping the EUR/CZK above the level of 27 to mid 2016, are very small.

Few words about the currency market

Today's session did not bring much macro data again. The only information that can have a slight impact on the currencies, is the reading about the sales of real estates on the secondary market in the USA. Tomorrow on the other hand, the market will know the first publication of the PMI from the eurozone since achieving an agreement with Greece. It is possible that the correction on the EUR/USD will occur by the end of the week.

Areas of balance for the zloty

Yesterday's increases on the EUR/USD caused the euro to cost over 4.1350. Today the situation is getting back to normal. It is because the changes on Tuesday were caused by the dollar's wear off, rather than the unexpected appreciation of the European currency. Thus, the majority of Wednesday's transactions on the EUR/PLN should be in the range of 4.10-4.12.

Any bigger changes should not be expected by the end of the week. Next Monday on the other hand, should bring some speculations regarding Wednesday's summit of the Fed. For the time being it appears to be relatively hawkish, because its aim is to prepare the market for the rate hikes in September (minutes published three weeks from now will also be useful regarding this matter). Thus, the dollar's wear off to the euro, as well as to the zloty, should be temporary. At the beginning of next week, a return to the area of 3.80 is more likely, rather than going towards 3.70.

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

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