Daily analysis 24.03.2015

The EUR/USD has been approaching an important level. Fairly solid data from the eurozone provides some ground to the common currency. How the market is going to position itself regarding the incoming data? The EUR/PLN has tested 4.10. Franc is still quite expensive despite the zloty appreciation.

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

• 13.30 CET: CPI from the US (survey:).2% m/m, minus 0.1% y/y; excluding gasoline and food: +0.1% m/m and +1.7% y/y.
• 14.45 CET: Manufacturing PMI from the US (survey: 54.6).

Mixed Fed and solid data from the euro area

The most recent Fed's officials remarks were mixed despite the fact that both FOMC members are from the came dovish camp. The Federal Reserve vice chairman said that the first rate hike should be by the end of 2015. It seems to be pretty wide time frame especially that the current consensus is still between June and September. However, pushing that date further toward the end of the year is a dovish signal.

Stanley Fischer also suggested that the hikes are not expected to be “smooth upward path”. It may be quickly derived from the most recent FOMC projections but stressing that subject by the vice chair is a negative message for the dollar.

On the other hand John Williams was far less dovish. The Federal Reserve chief from San Francisco in published during the night statement was still fairly committed to start discussion on rising rates in June. Additionally, he said that the employment is set to slide below 5% before the end of the year. Williams only slightly revised his GDP projections (from 3% to 2.5% y/y), but stressed that the stronger dollar should not stop the Fed from tightening monetary policy.

Overall we assume that the FOMC comments were neutral for the market and should not bring further dollar weakness especially after what we learned during the most recent Fed's meeting..

Solid PMI

We have seen fairly good macro data from Europe this year. The PMIs published today confirmed that trend. The Purchasing Manufacturing Index for Germany exceeded 52 mark (52.4). The composite Markit benchmark for the whole euro area was also solid and rose to almost 4-year highs at 54.1 points.

Commenting the data Chris Williamson, chief economist from Markit claimed that “the eurozone's economy gained further momentum in March”. He also claims the GDP growth may rise in the first quarter at 0.4% pace in Germany and +0.3% in the single currency area. What is pretty interesting is that if we transfer the growth from Europe to the US methodology (annualized, seasonally-adjusted q/q readings) we may see a better publication than across the pond for Q1.

The foreign market in a few sentences

When the EUR/USD reaches 1.10 level, it is crucial to see how the main participants want to make the next steps. The will to continue the appreciation move should be seen in investors' behaviour during better-than-expected data from the US. Keeping the recent gains in an adverse condition should extend rebound with a target at.1500.

The EUR/PLN 2-year lows on the horizon

Our target on EUR/PLN has been accomplished at 4.10 at the end of Q1. As early as this week the EUR/PLN should retest the two year lows, but the further PLN appreciation may be difficult and for a slide toward 4.03 investors would have to wait probably until the Q2.

The incoming days are set to be free from local economic data. First major reading is expected on April 1st (PMI). As a result the zloty should be traded in line with the global sentiment which may be defined as a composition of foreign stock market performance and the trend on the EUR/USD. The PLN should also be depended on data from Europe.

What may be pretty worrying for the Swiss franc mortgage owners is the recent condition of the CHF. It has strengthened significantly to the all major currencies and despite EUR/PLN sliding trend it is still around 3.90. Currently there are no signs that he Swiss currency can markedly weaken.

Expected levels of PLN according to the EUR/USD rate

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