Daily analysis 25.11.2014

A series of EBC members' statements stabilizes the common currency. Support program for investments in Europe will not change the situation on the continent. The market is getting ready for Friday's inflation data. National retail sale is close to estimations. Belka is concerned with negative effects of too strong zloty.

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

• 14.30 CET: Second reading of American GDP (estimations: +3.3% quarter to quarter, seasonally equalled, annualized; intial data showed +3.5%).
• 16.00 CET: Conference Board consumers' trust index (estimations: 96 points).

Statements. Program. Preparations

Recent hours on main currency pairs were relatively calm. EUR/USD, supported by better Ifo reading, moved slightly above the level of 1.2400 and despite the attempts of bouncing above 108.50 the dollar related to yen returns to the short term level of balance in areas of 108.

The afternoon comments of Jens Wiedmann also stabilized the common currency. The Bundesbank representative in the ECB claimed that he “does not see a threat of deflation in euro zone” and thinks that “actions of central banks' will not be able to generate the economic growth” in Europe. The hawkish member of monetary authorities also reminded about “the serious legal obstacles” that Mario Draghi and his colleagues may deal with if they want to introduce the purchase of treasury bonds (full QE).

However, considering the recent EBC comments, purchasing government bonds is coherent with central bank's mandate as long as it occurs on the aftermarket and the prohibition of financing particular governments concerns only purchasing the bonds directly on issuing.

Benoit Coeure sounded slightly less dovish (than e.g. Draghi recently). Despite the fact that in the interview for Bloomberg he confirmed that “the Bank is unanimous in increasing the monetary stimulation if there is such need” (this sentence appears also in the after-summit communicate), he rather tried to make the impression that increasing the assets purchase or widening the instruments (treasury and corporate bonds) that could be purchased is not at all certain.

Only statements of Christian Noyer were close to those that we have recently heard from the ECB chairman. Chief of French central bank claimed in Tokyo that the suggestions about increasing central bank's balance published in the recent communicate should be a clear signal for further actions. It means that if e.g. the central bank will not be able to buy a proper amount of mortgage bonds or ABS, it should reach for e.g. corporate or government bonds.

More and more details about the program of fiscal stimulation for the European Union are being revealed. The plan of 300 billion euro investments announced by the financial press, appears to be a highly leveraged financial vehicle. The European Commission will sacrifice only 16 billion and other 5 will be added by European Investment Bank. Similar initiatives (especially if they are based on credits) usually contain a financial leverage but 15-time leverage and really small initial capital (with GDP in limits of 13 billion euro, it is slightly more than 0.1% of GDP) may cause the result to be practically invisible.

Today's macro data will rather not have any clear influence on the dollar. The GDP on the other side of the ocean, would have to be at least 0.3% higher (lower) than the estimations in order to cause a visible strengthening of the American currency. The participants of EUR/USD market will also wait for initial inflation's readings for November on Friday. Until then we should maintain slightly above 1.2400, but with a bigger probability of testing recent minimums (1.2350), than exiting above 1.2500.

Concerned Belka

Before noon, the zloty tested the areas of 4.19 per euro and descended below 3.49 in relation to franc. These movements were rather not provoked, by the retail sale data, which were coherent with the prognoses. Probably the market was more concerned with the interview with president Belka, conducted by Reuters agency.

In it, the chief of central bank expressed his concern for the possibility of renewal of the zloty's appreciation trend, in its relation to euro. Additionally, MPC chairman suggested again that there is still some space for cutting the money rates. The formula of this statement and quite direct reference to the currency rate (overtaking the hypothetical movement) is a slight verbal intervention. However, the market should currently be concerned with raising risk of the interest rates cut, considering the decreases of EUR/PLN pair. It seems that at least up to the areas of 4.10-4.15 this fact should not be a main argument for the MPC decisions.

However, one should not pay too much attention to the Bloomberg's comment, written in a quite “lifestyle” form.The hypothetical feud described there between Belka and Hausner does not have a direct influence on the Council's actions, because the second one of these gentlemen has been suggesting for some time now that the half-percent interest rates cut from October (a so-called adjustment) is all that MPC should do at the moment. It is also worth reminding that considering the balance of votes and views, Elżbieta Chojna-Duch most probably “broke out” from the dovish-neutral camp.

In conclusion, we are maintaining the approach that if the PMI from upcoming week is positive (52 and more), EUR/PLN should fall to the areas of 4.18 and CHF/PLN in the limits of 3.47. Today, however, the trade will probably be calm and both euro and franc will remain close to their current levels.

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

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