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Daily analysis 26.03.2014

26 Mar 2014 14:49|Marcin Lipka

Another set of dovish comments from European monetary policy makers does not seem to push EUR/USD significantly lower. Lockhart is another FOMC member who “explains” Yellen “6 months”. The zloty strengthens in line with Russian ruble and Turkish lira.

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

  • 13.30 CET: Durable goods orders (survey +1.0% m/m excluding transportation +.03%).


The US data published yesterday was better than estimated. Conference Board consumer confidence index jumped to 82.4 points vs expectations around 78.4 and reached the highest level since April 2008. A bit of the drawback came from the housing market. New home sales was in line with the market survey (440k), but the previous month reading was revised downwards by 13k. Overall, the reports were solid, but we didn't see any significant move on the EUR/USD rate.

The most heavily traded currency pair was also quite resilient to signals coming from the ECB. Yesterday 4 members of the central bank expressed their opinion on the euro zone monetary policy. Markets were the most concerned with comments from Jens Weidmann. The Bundesbank chief is considered as a hawkish MPC member, however, his remarks were quite dovish. He told the MNI news agency that (according to Reuters) “if you wanted to counter the consequences of a strong appreciation of the euro for the inflation outlook, negative rates would, however, appear to be more appropriate measure than others”. He also didn't rule out the QE but asset purchase remarks were rather theoretical and were connected with the OMT program. Moreover in the “Wall Street Journal” interview with Bank of Finland governor Erkki Liikanen also sounded pretty dovish (he is usually considered as hawkish and supports the German wing in the ECB). He said that “the question of negative deposit rates, in my mind, isn't any longer a controversial issue”. In the same tone we can understand remarks from Slovakia's central bank governor Jozef Makuch. After the series of opinions, the EUR/USD market was a bit concerned with Mario Draghi Paris statement. However, during his speech on banking issues and overall Euro Zone economy, he made only short remarks on the monetary policy which were in line with his recent EBC conference and didn't list any unconventional monetary policy. It helped the EUR/USD to stay in the 1.38 range. The market seem to be pretty resilient to the ECB remarks on monetary policy, but an incoming central bank meeting (next week) can change this perception especially when the time of the meeting gets closer.

The EUR/USD was a bit supported by Dennis Lockhart comments. The president of Atlanta Fed (usually regarded as neutral, non-voting this year) said that “the second half of 2015 is a reasonable time frame in which we might get a lift off”. He also added (according to Bloomberg) that “The Fed will probably begin to raise the main rate more than six months (a clear comment to the Yellen's remarks) after halting bond purchases”.

Summarizing, on one hand the ECB members' remarks were quite dovish and should bring the euro lower. On the other hand, if we look at previous comments, they were also suggesting “a kind of monetary stimulation” from the ECB, whereas in the recent MPC statement and during the Q&A part Draghi clearly rejected all the unconventional policy measures and decided to leave the rates unchanged. However, when we approach the next week European Central Bank meeting some market participants can get scared that finally the ECB policy may change and negative deposits or asset purchase program will be introduced.

The zloty on the rise

The zloty received some positive impulses yesterday what caused us trading around 4.18 per euro today. Firstly, it was a solid report from the Polish job market. The unemployment dropped during the winter months, which rarely happens (the data is not seasonally adjusted). Secondly, the PLN took advantage from better sentiment toward EM currencies (Russian ruble and Turkish lira gained some value). Finally, the zloty might be more attractive when the ECB lowers its benchmark on push for some kind of unconventional monetary policy.

Today, the PLN can still benefit from positive market sentiment but we should not fall under 4.17 level. We can, however, see a more significant slide on the CHF/PLN pair. With the help of rising EUR/CHF and falling EUR/PLN, the Swiss franc can approach 3.40 PLN fairly quickly.

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

Range EUR/USD 1.3750-1.3850 1.3850-1.3950 1.3650-1.3750
Range EUR/PLN 4.1600-4.2000 4.1600-4.2000 4.1600-4.2000
Range USD/PLN 3.0100-3.0500 2.9900-3.0300 3.0400-3.0800
Range CHF/PLN 3.4000-3.4400 3.4000-3.4400 3.4000-3.4400

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

Range GBP/USD 1.6550-1.6650 1.6650-1.6750 1.6450-1.6550
Range GBP/PLN 5.0300-5.0700 5.0500-5.0900 5.0100-5.0500

26 Mar 2014 14:49|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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