Daily analysis 27.03.2015

The market corrects the yesterday's USD weakening caused by the disturbance on the oil market. Statements from the SNB members suggest the introduction of other actions, that will weaken the franc in the long term. The zloty is correcting yesterday's optimism, and has come back to the area of 4.10. Hawkish statements of Rzonca, appear to be neutral for the PLN market.

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

• 20.45 CET: Janet Yellen's statement in San Francisco. According to information agencies, it will concern the matters of the monetary policy.

Correction of yesterday's movement and Lockhart

Yesterday, we suggested, that the increase of aversion towards risk, observed on the global market of shares and appreciation of oil after the start of the air raids on Yemen by Saudi Arabia, is not a scenario of the situation's development. This would be preferred by the European currency's increase and American dollar's weakening.

of players from over the ocean to correct this disturbed situation. Comments of Dennis Lockhart were also a catalyst that allowed the dollar to regain its strength. Atlanta's Federal Reserve representative, who is close to the Fed's consensus, tries to shift between a slightly dovish approach which concentrates on a stronger dollar, underlining a weaker condition of the economy, and minimally hawkish view, presenting arguments, which indicate that despite a slightly weaker quarter, rising interest rates in the period of June or July, is justified.

The second view was victorious this time. Lockhart claims that the effect of the stronger dollar is more significant than he expected, but this will not be a crucial argument for performing the monetary policy. Chairman of Atlanta's Fed marked, that “raising interest rates in the middle of the year or slightly later is a reasonable time range”. It is of course coherent with wide consensus, but after the recent Fed's summit, one could expect moving this term towards the second half of the year. Now, we can see that the June - September term is still in the game, which gives arguments for purchasing USD.

Options for SNB

Yesterday's speeches from the SNB members need some attention. The representatives of the Swiss monetary authority were explaining their decisions concerning the removal of the minimum exchange rate, and showed in what degree the franc is overvalued. An illustration of real effective CHF rate (quotations of the Swiss currency based on the value of main currencies of commercial partners, including inflation) appeared to be especially interesting. It shows that CHF is overvalued by over 20%.

Real effective rate of franc in range of 25 years

Source: SNB. Analysis was prepared by Fritz Zurbruegg, a member of Swiss monetary authorities.

Another interesting thing is Fritz Zurbruegg's opinion about the IMF offer regarding a possibility of purchasing assets from the market, but not those denominated in local currency (as it is done by e.g. EBC), but in the foreign ones. Zurbruegg is a member of SNB, who is in charge of making decisions about the interest rates. He claimed, that “it is an interesting offer, that we are looking at”. He also sustains the opinion about this topic, expressed by an alternative SNB member, Thomas Moser. On Monday, Moser rated the above solutions, as “an option that we are looking into”.

Zurbrugg, as well as Moser, confirm that SNB can intervene on the market, in order to weaken the franc. One can also assume, that the option of a further interest rates decrease, is also one of the easiest elements to introduce. On the other hand, if SNB would really decide to purchase foreign assets, it would be a very strong signal for weakening of the Swiss currency.

Few words about foreign market

The market returned to the areas of 1.08 on EUR/USD, and we can deem those levels as decent, considering the current situation. It is also a good basis for further movements for the main currency pair. One should not cross out the growth correction yet, especially that next week we will receive an important reading from the industrial ISM, and data from the American labour market. It is also worth paying attention to this evening's appearance of Janet Yellen (20.45 CET). If the Fed's chairwoman would be as dovish as on the recent Federal Reserve summit, we can expect EUR/USD to approach under 1.09.

Movement's correction

Yesterday, we suggested that the zloty's appreciation occurs in opposition towards general sentiment, and it will probably be corrected. The national currency has really weakened, and we have started this morning in areas around 4.10. It is a good level (just as 1.08 is good for EUR/USD) to wait for further signals from the market.

However, I would not pay attention to the morning statements of Andrzej Rzońca for the Polish Press Agency. He is a hawkish representative of MPC, and his suggestions about the necessity of a fast return to normalizing the monetary policy (which means raising the interest rates), will not transfer to reality, nor will the behaviour of market players.

The zloty will probably finish this week, as well as the whole quarter, relatively close to the level of 4.10. However, in the upcoming weeks, the base scenario is a gradual appreciation of upcoming currency. Thus reaching the areas of 4.00 is very likely.

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

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