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Daily analysis 24.04.2014

24 Apr 2014 12:06|Marcin Lipka

EUR/USD is not taking advantage from better Euro Zone data nor weaker data from the other side of the ocean at the moment. Another considerations about the possibility of monetary policy's mitigating in Euro Zone. Zloty maintains stable despite clearly worse data about retail sale.

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

  • Published data from Germany (Ifo) and from Poland (retail sale, unemployment rate).
  • 14.30 CET: Orders for durable goods from USA (survey: +2.0% m/m, with exclusion of means of transport +0.9%).
  • 14.30 CET: Weekly applications for unemployment benefits from USA (survey: 313k).

USA. Euro Zone. ECB

Despite favourable data for the main currency pair, the levels in areas of 1.3850 achieved before Wednesday's afternoon could not be maintained. Apart from positive PMI indexes, the reports from American real estates market, where a clear descend of new houses' sale in March occurred (384k vs prognoses of 455k), should also be bullish for EUR/USD. Majority of observers of the one-family houses' market from the other side of the ocean does not foresee the sporadic report to be a serious threat for this sector. Bloomberg informs that the reason for worse reading were the growth of prices and increase of interest rates on the credits (approximately one per cent in comparison to March previous year). On the other hand, Ryan Sweet, Moody's Analytics elder economist, quoted by information agency claims that the slowdown was caused by insufficient supply of apartments and maintaining weak growth of average wages' median. In general, the weaker data rather spoiled the sentiment on the stock market than reduced the price of USD, indicating that it may be a threat for some economy branches, but it will not influence the monetary policy's parameters in USA.

Another positive element for common currency was today's publication of German IFO. Index describing the entrepreneurs' sentiment behind our western boarder increased to the level of 111.2 points, which was the second highest reading for almost 3 years (market consensus was at the level of 110.4). As Ifo Institute chairman Hans-Werner Sinn underlined in his comment about above mentioned data, “despite the crisis in Ukraine, the positive sentiment maintains in German economy”. Connecting today's publication with yesterday's PMI, one can assume that the situation in Europe's biggest economy, should improve from quarter to quarter.

The discussion about hypothetical introduction of quantitative easing operation by ECB and effectiveness of such actions is still alive. Ralph Atkins' article in today's “Financial Times” indicates that the effectiveness of QE in Euro Zone can be significantly lower than the one in USA. It is most of all a result of the fact that we are in a totally different moment of business cycle than in 2009 (a transfer on e.g. capital market will be less visible and the debt market, especially of peripheral countries, had discounted its hypothetical actions). Atkins also notices that Draghi is a “poker master” and reminds how in July 2012 with his famous “I will do whatever it takes” he prevented the Euro Zone from breaking down without spending a cent (operation of threatened countries assets' purchasing was not introduced, because the situation on peripheral countries' treasury bonds market improved – author's note). Thus it is not excluded, that he will use a similar strategy again this time.

On the other hand, Brian Blackstone from “The Wall Street Journal” undertakes a subject of too low inflation in Euro Zone (which, after to high rate of Euro, is the main element that can make ECB introduce QE – author's note). In his article he quotes quite an interesting opinion (opposite, among others, to what IMF preaches) of Jamie Caruan, main manager of Bank for International Settlements (BIS) who claims that “historical studies indicate that deflation periods were often related to the periods of durable economic increase, and the years of Great Depression were an exception from this rule”. Caruan's studies can be an interesting element of discussion about the fact of fatal influence of deflation/low inflation on future economic development, what in result can be one of the arguments keeping ECB from introducing unconventional actions in monetary policy.

In conclusion, after today's and yesterday's macro data, EUR/USD has more arguments for the increase. Mario Draghi's appearance, which has started at 11.00 CET, is not influencing the reduction of common currency's price. If ECB chairman will not perform another verbal intervention wearing off Euro, we can expect that we will cross the level of 1.3900 on main currency pair, before next week's data about inflation.

Not influential weaker data

Yesterday's failed test of the level of 4.20 on EUR/PLN has slightly discouraged the demand side and as a result, we are still remaining in limits of 4.19 per Euro. Zloty also resisted a negative pressure for data on retail sale for March published by GUS, which was more than two percentage points below the estimations of PAP (3.1% r/r vs expected 5.3%). Elements, which had probably influenced on relatively low readings, were the significant descend of demand for food and drinks (a year ago Easter were in March) and lower by a half increase of cars' sale (the effect of “bars” faded faster than it could be expected). Other categories behaved relatively well, so we can expect, that in the following months we should return to the higher readings.

Today Zloty should be again stable and most of the transactions will be probably held in limits of 4.19 per Euro, and 3.43 per franc. The only threat for maintenance of current levels by the Polish currency until the end of this week can be a significant escalation of conflict behind our eastern boarder (despite more and more decisive words from the both sides, it is still a very unlikely scenario).

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

Range EUR/USD 1.3750-1.3850 1.3850-1.3950 1.3650-1.3750
Range EUR/PLN 4.1600-4.2000 4.1600-4.2000 4.1600-4.2000
Range USD/PLN 3.0100-3.0500 2.9900-3.0300 3.0400-3.0800
Range CHF/PLN 3.4200-3.4600 3.4200-3.4600 3.4200-3.4600

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

Range GBP/USD 1.6650-1.6750 1.6750-1.6850 1.6550-1.6650
Range GBP/PLN 5.0300-5.0700 5.0500-5.0900 5.0100-5.0500

24 Apr 2014 12:06|Marcin Lipka

This commentary is not a recommendation within the meaning of Regulation of the Minister of Finance of 19 October 2005. It has been prepared for information purposes only and should not serve as a basis for making any investment decisions. Neither the author nor the publisher can be held liable for investment decisions made on the basis of information contained in this commentary. Copying or duplicating this report without acknowledgement of the source is prohibited.

See also:

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Daily analysis 23.04.2014

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Daily analysis 22.04.2014

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Daily analysis 18.04.2014

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