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Daily analysis 26.11.2014

26 Nov 2014 12:43|Marcin Lipka

Consumers' sentiments from afternoon and falls on American treasury bonds' profitability, overestimated the US currency. OPEC summit may appear important for some currencies which rates are affected by raw materials prices. Flood of data before Thanksgiving. A series of crucial statements of MPC members. Zloty is clearly stronger in relation to majority of currencies.

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

  • 14.30 CET: Orders for durable goods (estimations minus 0.6% m/m; with exclusion of means of transport +0.5% m/m).
  • 14.30 CET: Weekly applications for unemployment benefits from USA (288 thousand).
  • 14.30 CET: PCE inflation for October in USA (0.0% m/m and +1.4% y/y).
  • 15.45 CET: Chicago PMI (estimations 63 points).
  • 16.00 CET: Sale of new houses in USA (471 thousand).

Rebound. OPEC. Data

Some better data of American GDP fit well in the general trend on EUR/USD and lead the main currency pair towards the areas of 1.2400. However, the dollar strengthening has quickly turned around. The situation on the American treasury bonds market looked similar. Despite the good macro data which may have announced the rather sooner than later increase of the interest rates, the profitability of 10 years old bonds began to descend below 2.30%.

What is more interesting, it all happened before the publication of consumers' sentiments from the reading from the USA. Despite the fact that the society's sentiment is still close to its highest levels since 2008, their fall from around 95 points to 88.7 created some uncertainty about today's readings, as well as e.g. the upcoming “Black Friday's” sales result, or the whole season before Christmas.

As a result, the profitability of 10-years-old American bonds fell to the areas of 2.25% at the end of the session and the EUR/USD almost tested the areas of 1.2500. Without any other signals, the inflation expectations (and by them also Fed's decisions), which are described by the market of debt instruments, appear to be a good catalyst of dollar's evaluation.

The finale of tomorrow's OPEC representatives' summit will be an important event in context of the currencies which rates are affected by raw materials prices (rouble, Norwegian krone, Canadian dollar). The cartel's members will make the decision, if it is worth decreasing the production due to the falling prices and supply's surplus.

A lot of statements related to the OPEC hypothetical decisions appeared throughout recent days. Most of them seem to show the will of maintaining the extraction on current level (although of course it may be only a game). Thus the Cartel encounters a dilemma, whether the decrease of production will really cause the increase of oil prices and turn the trend around, or will it be only a stop in further falls and reduction of extraction will be of advantage only for the countries not related with OPEC (e.g. Russia or Canada).

It is also worth reminding about the main reasons for lower prices of oil are the shales revolution in USA (production's increase by USA by 50% during last two years – from 6 to 9 million of barrels per day), decrease of perspective for global economic growth and a stronger dollar.

The speculations about possibility of suspending the production (mainly in Iraq), were also not without meaning for maintenance of high evaluation of oil prices in previous quarters. These rumours were probably eagerly used by the speculation capital. Thus when the number of arguments against the higher price of oil began increasing, it fell quickly (purchase position's reverse).

It is also worth remembering that irrespectively of decision made tomorrow by OPEC, the oil market is strongly dependant from the wallet capital in the short term. And this wallet capital will probably try to “play” tomorrow's event in such a way, so that the outside players will rather not take advantage from it, no matter which side of the market they will occupy. The Russian rouble will be the biggest loser in context of currencies and another falls of oil prices. Thus if OPEC will not cut down the production, or decrease it only by a small amount, the records of rouble's weakness may be in reach.

The Norwegian krone or Canadian dollar, should also keep losing their value. The Asian currencies, like e.g. Indian rupee or Turkish lira, should be on the other hand the beneficiaries of oil's lower prices. Also, theoretically, all the economies which are oil's net importers should take advantage of the bigger consumption (more disposable income after excluding the costs of fuels), as well as better balance of current account (smaller deficit, or a bigger trade surplus).

This afternoon we will have a lot of macro data. Most important of them are orders for durable goods, applications for unemployment benefits, PCE inflation and sales of new houses. Considering the relatively high CPI reading, it will be hard to expect the PCE to be significantly lower than expected (1.4% y/y). However, some negative surprises might come from sellers' index (Chicago PMI). If this happens, it is not excluded that this afternoon we will observe the approach to 1.2500. In other case, we should stabilize close to the current levels, or return to the descend trend.

Interesting game

The zloty's behaviour in the recent days is very interesting. Current higher evaluations of national currency should appear much earlier (after the MPC decision, better GDP or Draghi's suggestions about QE). However, probably a part of speculation capital (of which the whole zloty market mainly consists) “made it through” a few days of quotations and slowly reversed the positions against PLN. Thus currently every reason is used to enforce the zloty.

So, yesterday's “concerns of Marek Belka” may be a good argument for purchasing the domestic currency (if the chairman is concerned, and rather is most likely not to cut the interest rates in the upcoming Council's “line-up”, it is an argument strengthening the zloty). Yesterday's suggestions of Hausner in his interview for Reuters may also be interpreted by PLN in the bullish way. One of two crucial MPC members said yesterday, that “the current level of the interest rates is adequate”. In the context of domestic currency, on the other hand, Hausner claimed, that “it is not the area, which would currently require any concern, and I consider any potential actions (in this area) as a mistake”.

Another key representative of the MPC, also does not show any bigger will to cut the interest rates. Elżbieta Chojna-Duch told the Polish Press Agency, that “the national data like retail sale, production and especially the labour market are not concerning in any way”. And at the moment the economy's condition, and not “imported deflation”, is the factor that the monetary authorities pay the most attention.

Both of these statements can suggest that if the Monday's PMI will not be weaker than the previous one, the interest rates cut in December is practically excluded. The market has probably not fully evaluated this fact (recent opinions, discrepant with consensus, disturb estimation of situation). Thus it is not excluded, that at the beginning of upcoming month, we may fall to the areas of 4.15 on EUR/PLN, and CHF/PLN will test 3.45.

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

Range EUR/USD 1.2450-1.2550 1.2350-1.2450 1.2550-1.2650
Range EUR/PLN 4.1800-4.2200 4.1800-4.2200 4.1800-4.2200
Range USD/PLN 3.3400-3.3800 3.3600-3.4000 3.3200-3.3600
Range CHF/PLN 3.4700-3.5100 3.4700-3.5100 3.4700-3.5100

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

Range GBP/USD 1.5650-1.5750 1.5550-1.5650 1.5750-1.6850
Range GBP/PLN 5.2500-5.2900 5.2300-5.2700 5.2700-5.3100

26 Nov 2014 12:43|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:

25 Nov 2014 17:18

Afternoon analysis 25.11.2014

25 Nov 2014 12:28

Daily analysis 25.11.2014

24 Nov 2014 17:53

Afternoon analysis 24.11.2014

24 Nov 2014 12:35

Daily analysis 24.11.2014

Attractive exchange rates of 27 currencies