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Daily analysis 28.01.2015

28 Jan 2015 13:12|Marcin Lipka

Mixed macro data from USA extended the correction of the dollar. Will Fed react on a lower perspective of inflation and strong American currency? Another details of SNB decision from before two weeks. Zloty became slightly weaker in relation to euro, after the market tried to “force” the cutting of money rates. Franc costs less than 4.15 PLN.

Most important macro data (CET). Estimations of macro data are based on Bloomberg's information, unless marked otherwise.

  • 20.00 CET: Publication of communicate after Federal Reserve summit in January.

Data and expectations towards Fed

Yesterday's session was not good for the American currency. There were at least three reasons for the dollar's weaker behaviour. First of them is strong wear off of franc in relation to euro. Purchase of European currency in relation to CHF, have also translated in the upward movement of EUR/USD, which became a catalyst for “buck's” general wear off. Another matter weighing on the dollar, was the publication of orders for durable goods. December was the third month in a row, when the data with exclusion of transport were negative. It is a longest streak of this index's drops since the 2008/2009 crisis culmination. At the moment the other overtaking indexes do not confirm the slowdown in the American economy, but it has been used for reducing the position on USD, before Wednesday's decision of Federal Reserve.

When it comes for today's statement from Fed's website, one should rather not expect any change in relation to December's tone. Of course there are suggestions of some market's participants, that the decreasing inflation and stronger dollar, may move FOMC expectations towards the moment of raising the money rates. But even if it would be true, it will rather not occur on a summit, where only the communicate will be published.

Additionally, the majority of macro data maintains the scenario of monetary policy's tightening in the middle of this year. The unemployment is record low and probably will continue to drop. The economic growth is decent, and we can also observe revival on the real estates market. Also the consumers' sentiments are best from many years, which in consequence will probably translate to a bigger demand, and we will finally see the increase of salaries. If Fed will position itself throughout the communicates and statements of particular members, the increase of money rates in mid 2015 will remain a basis scenario. What follows, the dollar should still appreciate in relation to other currencies.

Another details of SNB decision

„The Wall Street Journal” quotes wide fragments of interview SNB vice-chief, conducted by TagesAnzeiger. Jean-Pierre Danthine was among others asked, how did it happen, that 3 days before resigning from maintaining the level of 1.20 on EUR/CHF, he said on television, that the maintenance of minimal euro-franc rate is the basic of SNB monetary policy. Danthine explained, that “before the interview there were speculations in press, about the moment of resigning from maintaining franc in relation to euro, which caused an inflow of capital to CHF on Monday. If he would cancel the interview or aroused the anxieties, it would incredibly intensify the inflow of capital”.

However, if we will “defeat” the crisis of trust for SNB and look at the other fragments of the interview, we will find there information proving, that the current level of franc is not satisfactory for the Swiss. Central bank is looking at the solution used in Singapore amongst others. The rate of their dollar is for over 30 years controlled in relation to the basket of currencies, and the range of its fluctuations is being set once a half of year. SGD, just like CHF, should fundamentally enforce itself in a longer period, due to the surplus of current account, by 20% in some years. But the active policy of central bank prevents too fast appreciation, and increased variability caused by the capital's flows.

It is not excluded, that after franc's rate stabilisation and its certain wear off, SNB will come up with the solutions, that will prevent such strong variability in the future. It will also convert to a more stable franc in relation to zloty.

Few words about the foreign market

Basis scenario of today's Fed summit, is the maintenance of perspective of money rates increase introduction in mid 2015. It should slightly enforce the American currency in relation to euro, especially that a part of “buck's” wear off was caused by awaking the expectations, that Yellen and her associates, may slightly change their approach on the basis of decreasing inflation, and the lack of salaries' increase. Thus it is not excluded, that after 8 P.M. (CET) EUR/USD will retirn below 1.1300.

Money rates

The drops on the American stock market and increase of euro on interbank market have caused, that we are observing EUR/PLN in the limits of 4.23-4.24. Another argument for decreasing the appetite for zloty, is “forcing” the decrease of money rates by the market. It is visible on the money market, as well as on bonds market.

The chart shows profitability of 10-years old Polish bonds and NBP reference rate

Wykres - rentowności 10-letnich polskich obligacji

Source: Bloomberg. White line shows profitability of 10-years old treasury bonds denominated in PLN. Yellow line is NBP reference rate.

Yesterday, the level of NBP reference rate (2.0%), has been broken from above, by the profitability of 10-years old treasury bonds. It is a strong signal proving, that the future cost of the credit will be lower. At least within the upcoming quarters. A similar situation in mid 2012, began almost year long period of easing the monetary policy.

When it comes for franc, the Swiss currency will probably maintain in the division of 4.10-4.15 throughout the upcoming days. If a deeper movement should occur, there is a bigger chance that it will be the drop of CHF, than its increase. But at the moment going below 4.00 is a distant scenario.

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

Range EUR/USD 1.1250-1.1350 1.1150-1.1250 1.1350-1.1450
Range EUR/PLN 4.2200-4.2600 4.2200-4.2600 4.2200-4.2600
Range USD/PLN 3.7500-3.7900 3.7700-3.8100 3.7300-3.7700
Range CHF/PLN 4.1200-4.1600 4.1200-4.1600 4.1200-4.1600

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

Range GBP/USD 1.5050-1.5150 1.4950-1.5050 1.5150-1.5250
Range GBP/PLN 5.6500-5.6900 5.6300-5.6700 5.6700-5.7100


28 Jan 2015 13:12|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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Attractive exchange rates of 27 currencies