Daily analysis 25.11.2013

The EUR/USD came back above 1.3500 after solid German data and new record high levels at S&P500. Issues at the Minneapolis Fed. Investors have already started thinking about November Payrolls. The zloty managed to stay under 4.20 level. The MPC governor Marek Belka on euro-area.

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

• No macroeconomic news which can affect analysed pairs.

Germany. Minneapolis Fed. NFP

At the end of last week the bullish mood returned to the market. In result on Friday we ended the trading around 1.3550. Regarding the ECB uncertainty on negative deposit rate, quite solid data form the US and the recent Fed's minutes it can be viewed as the euro success.

Germany economy has been a “green island” in the recent days. Both PMIs and Ifo turned out to be above the previous levels and exceeded economists' expectations. They confirmed the upcoming economic rebound. On the other hand the rest of Eurozone countries has been in stagnation and there is a slim chance that the situation can change soon. In that context the ECB rate cut was justified, but a key question has be be answered: will it change anything? Returning to Polish western neighbour we assume that if the private consumption picks up and companies start to invest, Berlin can easily top the 2% GDP growth in 2014.

As The Wall Street Journal reports (“Minneapolis Fed Shakes Up Research Department”) there is“a controversial shake-up” in the regional Fed. Two top economists are leaving the local Federal Reserve and one a monetary advisor was told that her contract would not be extended. The President of Minneapolis Fed is Narayana Kocherlakota. He previously was a strong hawk, but since fall of 2012 he switched to be one of the most outspoken dove. Jeffrey Sparshott, the article author, does not come to a conclusion whether the changes have anything in common with Kocherlakota view of the economy, but the situation is really odd. We can also imagine that similar problems can arise closer to the most prominent Federal Reserve members especially that two out of 7 governors are suppose to be appointed next year and the usual rotations will be held at the beginning of 2014 where two new hawks are going to join the voting committee..

In the coming days we should not expect any major changes on the EUR/USD. Only a few economic indicators are planned to be released. Unusual volatility is also not expected from ECB members speeches (Draghi recently reduced the probability of an imminent deposit rate cut). In the second part of the week investors will start to position themselves before the NFP data. It will be one of the most crucial report in the current quarter and will have a significant impact on the EUR/USD rate.

EUR/PLN under 4.20. Marek Belka on the euro

The zloty managed to stay below 4.20 mark per the euro. The Polish currency should remain within the 4.16-4.20 range. It will still be fairly resistant to the “tapering talks”, but on the other hand the PLN can only slightly benefit from the “risk on” sentiment. Ignoring the market issues we can also see that the Polish current account is fairly balanced (trade data even suggests that we can have a slight surplus first time after the fall of communism). Therefore the zloty will be traded in the narrow range in the following weeks.

As Polish Press Agency reports (PAP) professor Marek Belka spoke at University of Wroclaw on the euro accession. Polish MPC governor told the audience that “joining the euro is a political issues and has not much in common with the economical rationality”. The President of the NBP claims that “if Poland had competitiveness similar to German, flexible job market like Sweden and public finances like Finland it would be a great and safe solution” to join the EMU. It is easy to agree with professor Belka but if we had all this wonderful features Poland would be at least as developed as Switzerland and then nobody would like to join any Union.

Summarizing the zloty should remain between 4.18-4.20. Tomorrow we have the retail sales data, but it will not have a significant impact on the Polish currency. Regarding the euro area accession we can imagine that 2020 is rather an optimistic date.

Expected levels of PLN according to the EUR/USD rate

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