Daily analysis 25.08.2014

EUR/USD fell below 1.3200 after Jackson Hole. Yellen appeared to be less dovish than expected. Draghi becomes more and more anxious with the situation in Euro Zone. Lockhart still sees chances for interest rates raise in mid 2015. Zloty's value slightly gains after dovish comments from EBC and a perspective of new records on Wall Street.

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

• 10.00 CET: German index of entrepreneurs' sentiment Ifo (estimations: 107 points).
• 16.00 CET: Sales of new houses in USA (estimations: 430 thousand; seasonally equalized annualized).

Below 1.32. Yellen. Draghi. Lockhart

Jackson Hole summit has clearly confirmed the increasing dissonance between the monetary politicians from USA and Euro Zone. As a result EUR/USD descended below the level of 1.3200 at the beginning of Asian session, which equals the achieving of barely annual minimums. The pressure on main currency pair should be maintained, despite the increasing chance for a short term working off in case of slightly worse data from USA, or minimally better from Euro Zone.

One has to admit, that Janet Yellen's speech about unemployment, published on Federal Reserve website, was interesting and professionally crafted. Fed chairwoman focused on a thorough analysis of labour market's condition (in all the monetary authorities are monitoring 19 indexes at the moment). Unfortunately, the deeper the subject's analysis was, the more questions begun to appear. Thus the statement that it is “difficult” to estimate how much unused labour resourced are there left in the economy appeared 6 times in the whole speech. The “headline” that caught the investors' attention and caused the speech to be received as slightly less dovish than expected, was the statement that “during the previous year the unemployment has clearly descended and the tempo of this descend was surprisingly fast”. Yellen also marked, that “labor market's condition (including a wide spectrum of indexes – author's note) improved faster, than FOMC expected it to”. Additionally, if this faster tempo maintains, Federal Reserve will raise the interest rates earlier than it is currently expected. In order not to make Federal Reserve chairwoman sound too hawkish, the fact that a lot of time after quantitative easing will pass until interest rates begin to increase, was confirmed. “A lot” means probably approximately 9 months, although Yellend tried to show, that this period begins to rather tighten than spread.

In comparison to Fed's chairwoman's speech, words of Mario Draghi sounded a bit depressive. EBC chairman's speech indicates that Euro Zone is still in stagnation and its significant part witnesses some serious structural problems which will probably cause that activation of private debt purchase (ABS) will be required in order to revive economic growth and inflation. The market also noticed, that the speech has been modified in the last moment (the version on central bank's website differed from the spoken one with one paragraph). This difference is a fragment in which Draghi suggests, that the short term inflation expectations have recently decreased significantly (according to five-year-old percentage rate of interbank loans which will come into force in 5 years), which can mean that EBC really prepares the market for introduction of another round of non-standard actions. On the other hand, in the short term it increased the uncertainty before Friday's data on inflation from Euro Zone (estimations for August is only 0.3% r/r).

A slight counterbalance for Yellen's and Draghi's speeches unfavourable for EUR/USD, was Dennis Lockhat's interviews for “The Wall Street Journal” and CNBC. Atlanta's Federal Reserve chairman said, that according to him the main indexes describing the market's condition exaggerate its improvement and earlier raise of the interest rates would be certainly a bigger threat for the economy than maintenance of a mild monetary policy by one of two quarters too long. Lockhart (dovish, non-voting, close to Committee's consensus) still thinks that a proper moment for credit's value increase would be mid 2015.

In conclusion, Friday's appearances of Yellen and Draghi were negative for EUR/USD. Increasing difference between the future level of interest rates will maintain the main currency pair under pressure and corrective bounces of Euro-dollar will be mainly used to take another short positions. If the situation does not change, we can expect the fall in the limits of 1.30 in the perspective of following few weeks.

Stable on zloty

National currency still takes advantage from the very good sentiments on the American stock markets (contract on S&P 500 indicates that the session behind the ocean can be a record once again). In a certain way the perspective of milder monetary policy in Euro Zone is a positive aspect (of course, if it will not translate into deeper money rates cuts in Poland).

Because the markets in London (where a significant part of zloty trade takes place, especially the wallet one) have a day off today, the following hours will probably be calm. Tomorrow we will experience a bit more emotions, when the data on retail sale for July will hit the market and also the meeting of representatives of European Union, Russia and Ukraine about solving the conflict in the east will take place. In case of negative informations from the country and abroad, we can expect the test of 4.20 per Euro. On the other hand, if a positive scenario would happen and we would experience further increases from behind the ocean, we can even descend below 4.17 on Euro and 3.45 on CHF/PLN.

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

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