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Daily analysis 26.01.2015

26 Jan 2015 12:42|Marcin Lipka

Political surprise from Greece – left wing Syriza forms a coalition with nationalists “Independent Greeks”. Solid German Ifo. Swiss franc slumped after the SNB data. The zloty gives up some of the recent gains. Odds for CHF/PLN slide increased with the target around 4.10-4.15.

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

  • No major macroeconomic news that may affect the analyzed pairs significantly.

”Syriza” and “Independent Greeks”

The base case scenario after the Sunday's election was supposed to be Syriza's victory and a coalition with center-wing Potami. Firstly, the exit polls were even suggesting that the radical left would be able to run one-party government but after more official data it turned out that Alexis Tsipras would have to seek a partner.

“Potami” was expected to “soften” the radical Syriza, which actually gained a lot of credit from populist calls on renegotiations of debt and more social spending. However, around 10.30 CET it was announced that Tsipras finalized a deal with “Independent Greeks”.

The cooperation between radical “right” and “left” may be really dangerous. Both parties are pretty far away concerning any program and only one issue put both of them into the game – the desire to seek a debt forgiveness. Currently it may be pretty hard for the ECB, IMF or the EU to make some concessions especially that Athens pay almost no interests on the loans.

This is, however, not enough for Syriza or “NG”. Their demands are clearly set. Both parties want debt forgiveness similar to that received by Germany in the early 50's.

We cannot rule out some kind of agreement with the Troika, but the beginning is going to be difficult. The new coalition cannot immediately resign from its main postulates. On the other hand the EU or the ECB is much more secured than 2-3 years ago. Ireland, Portugal or Spain met all the requirements by Toika and successfully implemented most reforms. Additionally, currently the banking sector is at much better shape and the the most recently announced ECB bond buying program is also supposed to increase the stability.

As a result we should conclude that the Greece is scheduled to be present in the headlines for at least few more weeks. It is a negative information for the common currency and a strong argument for a EUR/USD to continue the slide.

Solid German Ifo reading.

More German data are supporting a view that the largest UE economy is getting stronger. Besides 1.5% growth and budget surplus in 2014 and significant ZEW jump, the market received the highest since August Ifo reading (106.7 points vs 106.5 expected). According to 7k companies surveys all sectors are supposed to improve its situation but construction.

Hans-Werner Sinn President of the Ifo Institute while giving comments on the data wrote that “Companies were far more satisfied with their current business situation and the majority was also optimistic about the business outlook”. Solid Ifo is one of the reason that the euro EUR/USD has been traded above 1.12 despite more troubles from Greece.

The SNB was selling francs?

In the morning SNB published data on sight deposits. In the recent years if the sight deposits raised it meant that the central bank was selling francs. What is even more interesting the data showed that last week the SNB might have intervened at the highest amount since mid-2013 (25 billion CHF).

In the statement published on January 15th the MPC suggested that the currency interventions can be resumed at any time but probably few expected that they might be such strong. The Swiss franc reacted with sharp depreciations toward euro and it went pretty quickly to the parity. It also pushed the CHF/PLN toward 4.23. It may also be a strong message for the market participants that despite scrapping the peg, the SNB is ready to take action any moment.

EUR/CHF in recent hours

Wykres - kurs EUR-CHF w ostatnich godzinach

Source: Bloomberg. EUR/CHF during today’s session. The raise means weakening of the Swiss currency against the euro. The vertical red line indicates the moment of the SNB data publishing.

Foreign markets in a few sentences

Solid data from Germany and possible strong intervention from SNB caused that the EUR/USD remains pretty stable despite troubling results from Greece. However, taking into the account that Athens are suppose to remain in headlines for weeks it should be a negative signal for common currency.

The zloty corrects appreciation toward euro. Franc weakens after the SNB data

Last week the zloty appreciated significantly toward the European currency. Today in the morning we were observing a small correction of the recent gains which was mainly caused by Greek election and some inconsistent comments from government regarding franc issue.

CHF/PLN in recent hours

Wykres - kurs EUR-CHF w ostatnich godzinach

Source: Bloomberg. CHF/PLN fall shows the zloty strengthening against the franc.

However, despite some zloty softness, due to the franc slump the CHF/PLN is getting closer to the 4.20 level. If the SNB confirms its intervention policy we should expect more CHF/PLN even toward 4.10-4.15 level.

Following days should be shaped by the Greece headlines and Wednesday's Fed's statement. Tomorrow it is also worth to look at the retails sales. According to the Bloomberg consensus the sales is going to rise around 2.2% y/y. But in case of similar positive surprise observed during the production publication the zloty should be boosted by around 2 zloty cents both to the franc and the euro.

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

Range EUR/USD 1.1250-1.1350 1.1150-1.1250 1.1350-1.1450
Range EUR/PLN 4.2200-4.2600 4.2200-4.2600 4.2200-4.2600
Range USD/PLN 3.7500-3.7900 3.7700-3.8100 3.7300-3.7700
Range CHF/PLN 4.2000-4.2400 4.2000-4.2400 4.2000-4.2400

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

Range GBP/USD 1.5050-1.5150 1.4950-1.5050 1.5150-1.5250
Range GBP/PLN 5.6500-5.6900 5.6300-5.6700 5.6700-5.7100


26 Jan 2015 12:42|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.

See also:

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