Daily analysis 25.03.2015

The EUR/USD came back to around 1.0950 despite solid readings from the US. Ifo higher than expected but with non-“wow” effect. The zloty has strengthened to the highest level since early 2013. Low odds for significant slide on the CHF/PLN.

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

• 13.30 CET: Durable goods orders from the US (survey: +0.2% m/m; excluding transportation +0.2% m/m.

Readings from the US failed to push currency higher

Readings from the US published on Wednesday were pretty solid and should have boosted the greenback. The CPI rose slightly faster than expected, the PMI turned out to be higher than most economists estimated and the home sales topped a 6-year high in February. Additionally, the real estate data was revised upwards for January.

Previous analysis suggested paying attention to such a scenario. What would be the market's reaction if the US were to surprise on the plus side. The EUR/USD withheld selling pressure and managed to return above 1.09 despite the fact that bullish US readings are arguments for hawks to raise interest rates earlier.

It may also be a good argument for euro buyers, who see that the target for current correction is anchored somewhere around 1.11-1.12 level. For further gains, however, market participants will probably have to wait until next week when more crucial readings from the US (ISM, payrolls) are expected to hit the wire.

Good but not great Ifo from Germany

In the morning, currency traders were focused on the Ifo data. The business expectations for German companies rose to 107.9 points while the survey hovered around 107.3. It is hard to complain about the data but taking into account that the most recent PMIs, industrial production and retail sales were pretty solid some might have expected a stronger publication. In the past the Ifo was able to rise 2-3 points every month during economic rebounds.

The market also seemed to be a bit disappointed with the Munich index data and probably most of its gains were already priced in so the reaction was fairly muted.

The foreign market in a few sentences

Another “check list” for the EUR/USD should be the readings from the US due in a few hours. If good data hits the wire (durable goods orders excluding transportation above +0.2% m/m) and the main currency pair stays close to the current levels we might expect that the euro-dollar is prone to move above 1.10 with a short term target around 1.12. Contrary to the medium term when the Fed's officials turn more hawkish (May or June), the pressure on the EUR/USD should return and the slide toward a new multi-year low is considered to be a base case scenario.

Strong zloty but franc is still high

The zloty has been traded in line with our base case scenario since the beginning of the year. Today, the EUR/PLN dropped below 4.09 and set a new 2-year low. The appreciation trend of the Polish currency was supported by fairly strong gains on the forint and recommendation from the investment bank. Citi, cited by Bloomberg, suggests buying PLN against the euro with the target around 3.95.

We also confirm the base case scenario on the EUR/PLN with test of 4.00 in Q2, but in the following days a range trade is expected between 4.09-4.11. Probably at the beginning of April (good impulse may be the manufacturing reading from Poland) should retest the most recent lows.

A significantly weaker condition has been observed on the franc. The EUR/CHF slide has paused, but a return above 1.05 may be fairly difficult. If there was not overall zloty appreciation, we would have to pay for the franc around 4.00. Currently, we are not expecting significant improvement on the Swiss currency unless the SNB decides to lower the rates or introduce other non-standard measures. Still the threat for the CHF/PLN to approach 4.00 level persists.

Expected levels of PLN according to the EUR/USD rate

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