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Daily analysis 25.06.2014

25 Jun 2014 12:12|Marcin Lipka

More solid data from the US but with no impact on the EUR/USD. Comments from the FOMC members. Less hawkish Carney put some pressure on the pound. The zloty is gaining value due to less tension in domestic politics and in the east of Ukraine.

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

  • 14.30 CET: Durable goods orders in the US (survey +0.4% m/m; excluding transportation +0.3% m/m.
  • 14.30 CET: Final US GDP reading for Q1 2014 (survey: minus 1.8% q/q annualized, seasonally adjusted data).

Robust data. FOMC. The pound

The EUR/USD has been hardly moving anywhere despite quite good data from the US. Today it is worth noting the final GDP reading for Q1 which may be even revised downwards to around minus 2% q/q (lowest level since Q2 of 2009).

There are more reports that after the winter slowdown, the US economy is getting to a fast expansion path. New home sales across the pond jumped at the strongest pace since 1992 and the reading exceeded 500k which was the highest result since May 2008. Combining it with the Monday's reading we may conclude that the housing market is gaining the strength (kind of contrary to the recent FOMC statement, where that sector was cited as “slow recovery"). Additionally the Conference Board confidence index soared to the highest level since 2008 and topped 85 points.

On Tuesday, besides interesting news from the economy, we had also some comments from the FOMC. The crucial statement was made by William Dudley (second/third most important person in the Fed, dovish, close to Yellen's view, voting). The New York Fed president said, regarding the interest rate hike, that “the market expectations are that the Federal Reserve will start to raise short-term interest rates around the middle of 2015. That sounds to me like a reasonable forecast, but forecasts often go astray, so I wouldn't put too much weight on that particular set of forecast”. The comment seems to be pretty unclear but he also said that “the world is highly uncertain. In the current environment it's still very, very appropriate to continue to follow very accommodative monetary policy”. In result we may conclude that Dudley would see a first hike in mid-2015 or later but not earlier.

The most dovish FOMC member John Williams was slightly more hawkish than usually. Cited by “The Wall Street Journal” San Francisco Fed's member said that “we have to recognize that this extraordinary period of very low interest rate – and especially in the US – is something that will have to come to an end as the economy continues to improve and as we normalize monetary policy at the Fed”. On the other hand, Charles Plosser (voting, hawkish) noted on FOX Business that “recent economic reports show inflation is moving higher and that the Fed needs to “remain vigilant” to ensure it doesn't surge too high too fast.

Coming back to our continent, we had experienced some more volatility on the pound during Mark Carney hearing before Parliament's Treasury Committee. He said that “developments on the wedge front suggest to me that there has been more spare capacity in the labour market than we had thought”. It does not man that the scenario of a first hike in the Q4 is ruled out. If the wages show a trend of increase and inflation returns above 2%, the pound should continue the rise to the dollar.

Summarizing, we still have to wait for a stronger move on the EUR/USD. So far the solid data is not able to push the dollar higher (the recent dovish comments made by Yellen still weigh on the “greenback”). An interesting moment can be today's GDP reading for Q1. It should not change the range tend but a publication below 2% (lowest since Q2 of 2009) should extend the dollar weakness until the end of the week (if durable goods fail to be as solid as expected.

A bit stronger

The zloty gained around a quarter of one percent to the Euro comparing to the yesterday morning. The domestic currency is slightly supporter by the Ukrainian truce in the east of the country, some signals from the Kremlin regarding the de-esclalation of the conflict and less attention to the “Wprost” tapes.

If the issues mentioned above fail to surprise on the downside, we should regard as 4.14 level on the EUR/USD as a base case scenario before Thursday's retail sales data from Poland. However, if the consumers' demand goes in line with the recent disappointing readings (PMI, industrial production), then the discussion on the incoming cuts may get some steam, even though currently only Elzbieta Chojna-Duch is eager to support the decrease.

Today we will probably observe a fairly modest volatility on the zloty and range trade on EUR/PLN around 4.14, 3.05 on the dollar and 3.40 for the Swiss franc.

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

Range EUR/USD 1.3550-1.3650 1.3450-1.3550 1.3650-1.3750
Range EUR/PLN 4.1200-4.1600 4.1200-4.1600 4.1200-4.1600
Range USD/PLN 3.0400-3.0800 3.0600-3.1000 3.0200-3.0600
Range CHF/PLN 3.3800-3.4200 3.3800-3.4200 3.3800-3.4200

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

Range GBP/USD 1.6850-1.6950 1.6950-1.7050 1.6750-1.6850
Range GBP/PLN 5.1300-5.1700 5.1500-5.1900 5.1100-5.1500

25 Jun 2014 12:12|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.

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