Daily analysis 27.01.2015

High volatility on Swiss franc after comments from the SNB and market rumors. Standard&Proor's cut Russian rating level to junk. The EUR/PLN stays above 4.20 level after neutral data from Polish economy. The franc temporarily dropped below below 4.10 to the zloty.

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

• 14.30 CET: Durable goods orders from the US (survey: +0.3% m/m; excluding transportation +0.6% m/m.
• 16.00 CET: Conference Board consumer confidence (survey for January 95.5 points).

Strong volaitliy on Swiss franc

Just after publication of Greek election results in early Monday the EUR/CHF was quoted around 0.98. Today at one moment traders needed almost 1.04 francs to buy one euro before the market settled around 1.0150. Over 5% franc depreciation in such a short time period is a proof that much more volatility is on the horizon and it will take quite some time until all settles down.

The first possible catalyst of franc depreciation was yesterday's SNB data. Later there was some rumors quoted by Bloomberg that leveraged funds have been closing long positions on CHF. Moreover, in the morning we received reports that vice chairmen of the SNB told Tribune de Geneve and 24 heures that central bank is prepared to intervene on the currency market. Jean-Pierre Dantine also claimed that the current EUR/CHF level is not economically justified, but resisted to say whether the central bank has a preferable rate.

Just after the SNB scrapped its peg to the euro, the government official commented that the EUR/CHF pair should be traded around 1.10, what should actually be translated to around 3.80-3.90 on the CHF/PLN. Currently, despite increasing probability of weaker franc such strong depreciation is not a base case scenario. We should, however, anticipate that in following weeks some of the speculative capital would like to book profits on the franc what may even translate to more sustained appreciation above 1.05 to the euro and a fall on CHF/PLN under 4.00.

Russian rating cut

Yesterday Standard & Poors cut Russian rating to speculative grade (BB+) and left the negative outlook. Despite that the decision was widely anticipated the ruble slumped around 5% toward the dollar on illiquid evening market in Moscow.

Besides some fairly well known reason which pushed the S&P to cut Kremlin toward junk the rating agency also noted that both government and central bank space for maneuver decreased recently. Russian officials are either playing down the significance of the event or even claim that it was politically motivated. However, it does not change the fact that if the oil stays around current levels and there is no progress toward Ukraine, the Kremlin will be pushed further into the outskirts of developed countries and it would further push the currency lower.

The only fairly optimistic conclusion from the S&P was a finding that Moscow is still far from introducting capital controls. However, if the economic situation was set to worsen such scenario cannot be ruled out. Currently the base case outcome for the USD/RUB pair is a trade within 65-75 range.

Foreign markets in a few sentences

Increased volatility on the franc will remain probably remain in the following weeks. The EUR/CHF appreciation pushed also the EUR/USD higher, but tomorrow's Fed meeting should pause the euro-dollar appreciation. In the coming days we should also expect more headlines from Greece. It seems that Athens are going to play hard with Troika and nominated Yanis Varoufakis for the head of finance ministry. A well known critic of the current ECB or EU policy toward Greece but also the economy professor at universities in the UK, Australia or the US and the author of many books may give some significance headache to to euro zone officials.

The data and franc

In late morning the GUS published flash estimate of Polish GDP for 2014. In line with expectations the economy expanded by 3.3% in the last four quarters. The structure of the growth seems to be pretty healthy and was pushed mainly by investments and consumption.

Slightly below expectations was reading on retail sales. It rose by 1.8% y/y while the market consensus was around 2.2% y/y. The data, however, was not bad enough to increase the odds for a rate cut in February. Overall the macro publications were neutral what was also confirmed by muted reaction on the EUR/PLN.

Much more volatility was observed on the CHF/PLN. Due to strong moves of franc on the global markets the pair dropped to 4.07 in late morning while at the beginning of Monday session it was quoted around 4.30. The global franc nervousness is supposed to remain and in consequences it should translate in sharp moves even in the intra-day trading.

CHF/PLN this week

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

In the following hours, besides CHF/PLN, the trading should be fairly calm on the zloty. The market will be getting ready for tomorrow's Fed decision. On the other hand the base case scenario, also suggested yesterday, for the franc-zloty should be range between 4.10-4.15 PLN.

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

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