Daily Analysis 23.04.2015

The decisions of the Swiss National Bank, wear the franc off. However, this wear off is bigger in relation to the dollar, than to the euro. The PMI indexes appeared to be worse than expected, and they decrease the optimism in the eurozone. Positive comments from the Greek side. EUR/PLN comes back above 4.00. Franc is clearly lower.

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

• 14.00 CET: the discussion record after the recent MPC summit.
• 14.30 CET: weekly applications for unemployment benefits from the USA (estimations: 290 thousand).
• 15.45 CET: industrial PMI from the USA. (estimations: 287 thousand).
• 16.00 CET: sale of new houses in the USA (estimations: 515 thousand).

SNB decision

Yesterday, the Swiss National Bank (SNB) decided to decrease the number of institutions, which are released from paying negative interest. According to the announcement, one of the institutions that will have to pay for keeping their cash in the bank system, is the pension fund PUBLICA. Theoretically, this decision has no bigger meaning and its influence should be rather limited. It should not be a reason to “push” the bigger part of means abroad, like it happened in the case of e.g. the change of investment funds for the Japanese pension fund.

However, this might have frightened the capital wallet a little bit. It is due to the fact, that the SNB continues to consider the possibility of wearing the Swiss currency off. It has strengthened the expectations concerning the decrease of interest rates, or introducing the exchange rate control in relation to the most important trade partners' currency basket.

The franc's wear off has had a stronger influence on the increase on the USD/CHF pair, than on the appreciation on the EUR/CHF. Thus, EUR/USD has dropped after the above information, despite the fact that the reaction is usually the opposite. In general, however, the SNB decision should not be a crucial moment. If some additional actions will be introduced within the next few weeks, the majority will forget about this event, and the franc's exchange rate will return to the previous levels.

Weaker PMI, but there is no tragedy

The initiation of records during the European session, had already the burden of worse than expected PMI from China (49.2 vs 49.6). Logistic Managers' Index from industry is staying below the level which separates development from regress (50 points) for another month. This is also not an optimistic signal. However, the market was able to deal with bigger problems than this, by, for example, foreseeing a bigger chance for fiscal or monetary stimulation from China.

Although, it will be difficult to use this argument in the case of France. Instead of developing, the industry of this country is shrinking. And it is happening at a faster tempo than it was a month ago (drop of the PMI from 49.2 to 48.4). The situation in Germany does not look too good either. Their Logistic Managers' Index was supposed to increase to 53 points, and it dropped to 51.9. However, the situation in the eurozone does not look that bad, which is underlined by chairman of economists from Markit. This company has prepared the study.

Chris Williamson thinks, that the general reading of the PMI from the eurozone (53,5 points) indicates the increase of GDP in the second quarter by 0.4%, in q/q relation. He also claims, that a part of the enterprise and consumers is concerned with Greece, whilst the weakest link in the eurozone at the moment, is France.

Important moment for Greece

The summit of the Eurogroup in Riga will begin tomorrow. This afternoon on the other hand, chancellor Merkel is going to meet with prime minister Tsipras, during the EU summit about immigration. If one was to believe the information coming from the Syriza government, the understanding with “the creditors is very close”. Officials from Brussels are definitely more sceptical, although they mark, that progress is possible. They even allow the possibility of paying out the aid in tranches, which has been signalized by the chairman of the Eurogroup.

Thus, it is not excluded that despite quite careful expectations before the summit in Riga, Friday afternoon may be relatively exciting. It the frame understanding will be announced, we can expect the exit of EUR/USD to be above 1.0800. It can also not be excluded, that due to the leaks, the movement can be observed even sooner.

Few words about the foreign market

Despite the investors are aware of the particular macro data, their attention concentrates more on Greece. Announcing the understanding on the summit in Riga, can rebound EUR/USD above the limit of 1.0800. On the other hand, the extension of negotiations combined with good readings on the other side of the ocean, is a chance for a decrease, even below 1.0600. Much deeper movements are unlikely, until Wednesday's summit of the Fed. It should show, whether the first weak quarter awakes such anxieties among the members of the Federal Reserve, that they would introduce more serious changes in the announcement.

Zloty in correction

Zloty once again has returned above the limit of 4.00, in its relation to the euro. The national currency was supported by the relatively hawkish comments of professor Osiatyński only for a moment. It is worth mentioning that up until now, Osiatyński has been considered as a supporter of a milder monetary policy. In his interview for Reuters, the MPC representative said, that “at this moment there are no premisses, to consider cutting interest rates”. Additionally, his comments about hypothetical intervention on the currency market, were also quite balanced.

Currently, the sentiments on PLN are mostly spoiled by the uncertainty concerning Greece. The second argument to continue the correction, were the weaker PMI readings from the eurozone. It is mainly the publication from Germany, that may “cool down” the expectations before the national reading, planned for 4th of May.

One should not expect any bigger “revelations” from today's “minutes”. The record from the recent MPC summit, will rather not bring any bigger turbulence. Only a wider discussion about enforcing the zloty, could make the correction deeper. However, considering the statements of the Council's members, it is still too soon for such a solution.

The extending correction on the EUR/PLN, should relatively quickly activate the selling side. It could be supported by positive information from Greece. However, if there will be no breaking decisions in Riga, the euro-zloty can remain above 4.00, even until the beginning of May.

In the end, it is worth to look at the franc. A visible wear off of the Swiss currency on the international market, has taken CHF/PLN to the area of 3.83. However, the coincidence has caused it to overlap with a general correction on EUR/PLN, and as a result we are heading again towards 3.90. Bigger movements on EUR/CHF can also mean, that the changes on CHF/PLN will be contained in a quite wide range (3.80 – 3.95). This is currently a base scenario for the franc.

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

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