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Daily analysis 26.11.2015

26 Nov 2015 13:19|Marcin Lipka

Yesterday's reports from the American economy can be considered as neutral regarding the future American monetary policy. The EUR/USD is stable before next week's events. What can the SNB do, when the ECB intensifies the easing? Once again the zloty is one of the weakest currencies among the developed and emerging markets.

Most important macro data (CET – Central European Time). Estimations of macro data are based on Bloomberg information, unless marked otherwise.

  • No macroeconomic data which could have a clear impact on the analysed currency pairs.

No unambiguous impact of the American data

Yesterday we had a cumulation of macroeconomic publications, due to today's Thanksgiving Day in the United States. In general, they can be considered as neutral. However, few matters are worth noting. They could be an argument for a slightly softer path of the future American interest rates, as well as for views of necessity of keeping the perspective of monetary tightening, presented on September's meeting.

From the perspective of new jobless claims, the labour market still looks very good. They depreciated to 260k. This is a result by 10k lower than the economists surveyed by Bloomberg expected. Additionally, 4-week-long average is close to the 42-year-old minimum. This means that employees' dismissals are on a record low level.

Orders for durable goods, and also the service PMI, were positive for the future American interest rates too. Accelerating index for the American business cycle increased to the level of 56.5. The expectations were within the limits of 55 points. In his comment to the data Chris Williamson, chief economist from Markit, takes note that an increase in the PMI suggest the November's GDP to be on the level of +2.3%., and also 180k new jobs in non-agricultural sector.

On the other hand, expenses of the Americans were below economists' prognoses (+0.1% m/m vs +0.3%), despite the fact that an increase in incomes was coherent with estimations. This may mean certain anxieties regarding the future condition of consumers' economy in the United States. Additionally, the base case PCE inflation remained +1.3% y/y, with the market consensus at the level of +1.4%. Thus, it may be an argument for more dovish members of the Fed, to soften the path of future interest rates on December's meeting.

SNB's problem

The European Central Bank (ECB) meeting planned on December 3rd, may have an impact not only on the EUR/USD pair, the Swedish krona, and our region's currencies. The Swiss National Bank (SNB) may also have problems with maintaining the EUR/CHF rate within the limits of current levels.

Anticipation for the EBC activating the quantitative easing, was the main reason for the SNB resignation from keeping the EUR/CHF rate above 1.20, and caused an appreciation of the Swiss currency by leaps. Currently there is a small chance for the franc to enforce as significantly as it was in mid January. However, the risk of an increase in the CHF value still exists. Especially, if the ECB crosses the market's expectations regarding the monetary easing.

The Swiss monetary authorities still possess two main tools, which can help them decrease the appreciation pressure on the CHF. First of all, they can still decrease interest rates. In the past months the SNB chairman Thomas Jordan suggested many times that there is a possibility of further easing in the monetary policy. He also claimed that interest rates on the level of minus 0.75% are not a lower limit for the SNB.

Additionally, the Swiss can conduct the currency interventions. According to Bloomberg informatio, Thomas Jordan told yesterday the Handelszeitung newspaper that the franc is “significantly overvalued”, and one of the pillars of the monetary policy are “the currency interventions when necessary”. Thus, one may assume that the SNB will want to defend the franc from strengthening. However, it is possible that when the impact of the market forces is significant, the SNB will be forced to appreciate the CHF, as it was in January.

Few words about the foreign market

The base case scenario for the EUR/USD is to remain within the limits of 1.06 by the end of the week. However, on Monday a more aggressive clash can begin. It will engage the supporters of the ECB softer approach, and those who claim that a majority of negative information for the main currency pair is already calculated in the prices, and Mario Draghi and his colleagues may experience problems in surprising the market in a dovish way. This may cause some stronger movements, even directly before the ECB decision.

Zloty is the weakest currency

According to Bloomberg agency's summary, since the beginning of November the zloty is the second weakest currency among 31 currencies of the developed and emerging markets, right behing the Colombian peso. It is also worth emphasizing that this is another weak month for the PLN. As a result, since the beginning of October the zloty is the weakest currency, and since then lost 5.7% of value to the dollar.

On the other hand, it is worth noticing that the higher evaluations of the USD/PLN are mainly related to the strength of the American dollar. The Danish krona, euro and the Hungarian forint, lost almost as much to the buck (respectively minus 5.2%, minus 5.2%, and minus 5.1%). Additionally, the zloty is strongly related to the euro. Despite that it could slightly gain value thanks to the mild monetary policy of the EBC, the anticipated monetary tightening in the USA and uncertainty regarding the national fiscal and monetary policy stopped this process.

Not much should happen on the national currency (as well as on the EUR/USD) until the end of the week. The EUR/PLN will probably remain above 4.25 due to a greater geopolitical risk. On the other hand, the dollar will cost more than 4.00, mainly due to a global strength of the American currency.

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

Range EUR/USD 1.0550-1.0650 1.0650-1.0750 1.0450-1.0550
Range EUR/PLN 4.2400-4.2800 4.2400-4.2800 4.2400-4.2800
Range USD/PLN 4.0000-4,0400 3.9600-4.0000 4.0400-4.0800
Range CHF/PLN 3.9200-3.9600 3.9200-3.9600 3.9200-3.9600

Anticipated GBP/PLN levels according to the GBP/USD rate:

Range GBP/USD 1.5050-1.5150 1.4950-1.5050 1.5150-1.5250
Range GBP/PLN 6.0600-6.1000 6.0200-6.0600 6.1000-6.1400

26 Nov 2015 13:19|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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