Daily analysis 27.02.2014

The EUR/USD is not able to withstand the downside pressure and falls significantly below 1.38 mark. Solid data from New Zealand is another bullish signal for the kiwi. The zloty stays around 4.18 per the euro and around that level we should finish the week.

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

• 13.30 CET: Final GDP reading from the US (survey: 2.7% for the Q4 of 2013.
• 13.30 CET: Weekly jobless claims in the US (survey: 323k).

More discussion on the ECB. Kiwi

The US macro reports were limited to one figure on Wednesday – new orders for durable goods. The data was much better than expected, but only regarding the headline reading (+2.2% m/m vs estimates at +1.0%). Excluding transportation (cars and planes) the growth was only +0.2% which was slightly below the market consensus set at +0.3%. Overall, we can see that the data was rather neutral for the EUR/USD, and that was basically the investors' interpretation.

The market is still fairly excited regarding statements from ECB officials which hit the wires on Tuesday. Many investors are not sure how to evaluate some dovish opinions from hawkish MPC members. Are they only “cheap talk” or an indication that the European Central Bank is really closer to the additional easing. The fact, that Bundesbank Jens Weidmann in an interview for the MNI news agency did not rule out asset purchase or negative interest rates and his colleague from Finland Erkki Liikanen in “The Wall Street Journal” said that an idea of deposit rate below zero is not controversial for the ECB. Several months ago such a statement would have caused at least 100-200 pips slide on the EUR/USD, but currently investors are more resilient to the “talking” from the MPC officials. They were many times “tricked” by some dovish statements and then the central bank didn't act. They also remember the recent Mario Draghi conference when the ECB chief tried really hard to explain that the inflation would come back to the target quoting estimates for Q4 of 2016. Since the last ECB meeting we haven't gotten any significant data which can actually push the central bank to ease the policy. There was only a slight revision of the February inflation (from 0.8% to 0.7%, but in can be counter by much better PMI readings from France). In result there is a slim chance that we can see any rate move during the April meeting. It does not, however, change the perception that the EUR/USD is under a significant pressure which not only comes from the ECB (some fear before the next meeting) but especially from faster tightening in the US.

Moving to the other side of the globe, it is worth to mention a significant strengthening of antipodes currencies. Kiwi after rising the interest rates by 25 bps by the RBZ and with expectations of another 100 bps rise, received another bullish impulse. The export in February jumped by 17% in comparison to February of 2013. The statistical office also pointed out that the trade surplus was the largest in history last month and amounted to 818 million USD. The data caused that the NZD added almost another figure do the US dollar and we are only two cents shy of the all time highs on the Kiwi. The Aussie situation is also improving. Australia is expecting some fiscal stimulation in China which can be beneficial for the commodity export (main Canberra's trading good). The recent remarks from the central bank are also not as dovish as previously expected.

Summarizing, the EUR/USD should remain under pressure not only due to dovish remarks from ECB members but particularly from recent Yellen statements. The expectations of falling EUR/USD below 1.3700 till the end of the week are still valid.

Stable zloty

Yesterday we received another bullish estimates on Polish economy. The MPC member Anna Zielińska-Głębocka told ISBnews that the GDP may rise 3.8% in 2014. In line with another optimistic expectations presented a few days ago by Morgan Stanley (+3.5% in 2014 and +4.2% in 2015) and NBP projections also around 3.5% showing that the country can expand around 1 percentage point more than the government projected in the budget (which can have a positive impact on the budget deficit)

Today the PLN should remain fairly stable. A significant lira appreciation and the Russian ruble rebound has already been discounted by the zloty. Therefore we may finish the week around 4.18 per the EUR/PLN and slightly above 3.40 on the CHF/PLN.

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

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