Daily analysis 23.12.2013

EUR/USD in upper areas of 1.36. Reasons for Rosengren not voting for tapering. Political affair and high deficit on current turnovers calculation, are overrating Turkish lira. Polish zloty tries to overcome the boarder of 4.16 per euro. Retail sale data.

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

• Apart from the market consensus, we will publish the expectations division for some macro data. It often happens, that the market reaction is biggest, when macroeconomic reports are beyond the range of extreme predictions.
• 10.00 CET: Already published data on Poland's retail sale.
• 14.30 CET: PCE inflation (the one observed by Federal Reserve with most attention). Estimations of data for November are +0.1% m/m (predictions' division is 0.0% to 0.2%).

Rosengren and Turkey

For starters we should pay attention for the final readings of GPD from USA. According to informations from Friday passed on by the United States Department of Commerce, the reading for third quarter was +4.1%. Significant contribution to these positive data, was brought in by supplies (1.67 per cents). If we will subtract the influence of supplies for past quarters, then the development in last of them was decisively most healthy – consumption assured 1.36 percents and investments - 0.89 per cents. Also we witnessed the stop of negative tendency of limiting the government's expenses, which negatively influenced the economic growth for last periods of time. EUR/USD even tested the level of 1.3700 on Friday afternoon, and though this movement was caused mainly by options expiration, today's opening shows, that the downfall pressure on main currency, has realy decreased.

Also on Friday, Eric Rosengren published a short statement, explaining why, as the only FOMC member, has he not agreed on Committee's decision on changes in monetary policy, which is most of all limiting the amount loosening (http://www.bostonfed.org/news/press/2013/esr-fomc-statement122013.htm ). Though that Boston's Fed president agrees with the view that the economy is accelerating and the unemployment decreased significantly, though in his opinion it is still too soon to withdraw from monetary stimulation. Rosengren also claims that his and other Committee members economic predictions, were too optimistic while getting out of recession and this situation cannot repeat itself. Also he claims that Federal Reserve is still far from its basic aims – full employment, which is rated to be on 5.25% level (currently it is 7% - author's footnote) and inflation aim in boarders of 2% (currently PCE is 0.7% r/r). President of Boston's Fed has positively rated the change in forward guidance, which means holding the interest rates on level of zero, long above the moment of unemployment decreasing below 6.5%. Rosengren's view is not crucial when it comes to Fed's policy (especially that it was the last summit when he had a voting right), though the elements mentioned by him (still too low inflation, too high unemployment, overestimated predictions and changed forward guidance) can be the main factors, that will be used by dollar bears in the game against the “buck”.

On Friday I wrote, that EM countries most threatened with currency's weakening have managed relatively well with amount loosening limitation, announced by Fed on Wednesday. This situation does not concern the Turkish lira though, which has weakened on more than 2,5% in relation to dollar during last 5 sessions, and the EUR/TRY and USD/TRY couples, have finished the week on best levels in history. Apart from the purely economic reasons (very high deficit on turnovers calculation, which crosses 7% of GPD and financing it with a short term debt), local currency was weakened by a political scandal (several arrests of people connected with the prime minister, who was charged for corruption). The Wall Street Journal simultaneously reminds the August assurances of Turkish Central Bank president, in which he said “we will defend lira like lions”, and “believe me, we will be victorious”, and USD/TRY pair finishes this year on 1.92 level. Currently we are over 5% higher though (2.09). President of Turkish bank clearly tried to copy the success of Mario Draghi and his famous assurences on defending the euro in Summer of 2012. This time it did not work out, so (apart from the macro situation and the political destabilisation) this fact should also weaken lira.

In conclusion, EUR/USD slowly tries to catch up with the losses. We should pay attention especially to the inflation data on PCE from USA. This index is one of the main elements allowing to keep the monetary policy very mild. The lower the reading, the worse for USD and thus the chances of EUR/USD growth are bigger.

In areas of 4.16

Retail sale published at 10.00 CET was +4.2% r/r and it was a bit higher then the economist surveyed by Polish Press Agency expected (+3.1% r/r). These data should not influence the price of zloty in any way though, and the only interesting position contained in Central Statistical Office's report, is the unusually strong increase of “clothes and shoes” - flew up to 18.9% r/r.

Zloty tried to test the strong supports in the area of 4.15-4.16. Although this attempt has failed again, the next approach to this important boarder can cause, that we will take off from the side trend lasting for few weeks and we will finish the year in boarders of 4.10-4.12. This movement could be the beginning of stronger enforcing of zloty in 2014.

In conclusion, despite descending in the areas of 4.16 on EUR/PLN the basis scenario remains finishing the year in boarders of 4.16-4.20. If we could overcome the lower limits of this level though, the range of such movement would be 4.12-4.10 on EUR/PLN and slightly below 3.00 on USD/PLN.

Expected divisions in zloty pairs determined by the EUR/USD rates:

Expected levels of GBP/PLN rate determined by GBP/USD: