Daily analysis 29.11.2013

The EUR/USD remains around 1.3600 level. Important inflation data from the euro area. Record - breaking levels on Japanese yen and Australian dollar pairs. A brief view on the Ukrainian economy. The EUR/PLN is holding under 4.20 and the odds for stronger upward move are diminishing.

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

• Besides the market consensus we are also publishing the consensus range. It gives more info how economists predict the incoming data and what kind of impact can be generated from surprising reports.
• 10.00 CET: Final GDP reading (already published) from Poland (survey 1.9 y/y and +0.6 k/k seasonally adjusted).
• 11.00 CET: Euro area inflation (survey : +0.8%).

Eurozone inflation. AUD and JPY. Hryvnia

The recent hours were characterized by really low volatility, which on the one side was caused by US Thanksgiving holidays, and on the other side investors decided to “stay on hold” before the incoming inflation data from the euro area. In the previous month the record low HICP was a catalyst for the EUR/USD to fall 1.37 to lows set around 1.33. This time economists are expecting a reading around 0.8% y/y vs 0.7% in October. If the data turns to be below the estimates (0.7% and below) we can expect a significant downward pressure on the most traded currency pair. On the other hand we can get a visible bullish move if the HICP report exceeds the expectations and is at/or above 1.0%. Such a reading would decrease the pressure on the ECB to loose the monetary policy and give the opportunity to the euro to remain at or above current levels.

Since some time we have been observing a record record low/high levels on Japanese yen and Australian dollar pairs. The first one is still under Abenomics influence – highly expansionary monetary and fiscal policy which should speed up the inflation/consumption/investments and pull away the country form two-decade long stagnation. On the USD/JPY we are close to 5-year highs (despite that the “greenback” is not really strong). Moreover the both GBP/JPY or EUR/JPY pairs have already exceeded 5-year tops. The most interesting looks CHF/JPY pair where we are on 23-year record level and we are only 2% away to make 30-year highs. The situation does not look so spectacular on the latter currency – Australian dollar. The, so called, Aussie has been recently weakening (on possible RBA intervention, lower commodity demand, tapering and etc) which is causing that both to Swiss franc and to the euro we are testing multi-month lows. Historically such trends usually last much longer than many investors expect.

There has been quite a lot of discussion on Ukraine recently. Today the subject also hit business media. One of Bloomberg TV reporter said today that in 2014 Ukrainian economy can be one of the most discussed subject (as Cyprus in 2013). The comparison is far from positive connotations. Looking at the Kiev economy the situation does not look bright. In the last quarter the GDP shrank (minus 0.5% q/q and minus 1.5% y/y). The country is hit by double deficit – budget shortage is 4.6% and current account is minus 5.9%. Quite negative message for hryvnia also comes from 50% drop of foreign exchange reserves in the last 12 months (from $40 billion to $20 billion). It means that the reserves cover only less than 3-month value of Ukrainian import (it suppose be at least half a year). The probability of another crisis (also currency) is relatively high and the Bloomberg reporter is not far from truth.

Summarizing, the global currency market should focus on euro area inflation data. After the HICP report investors will start focusing on the next week NFP reading which can either push the Fed away form the December tapering on bring Ben Bernanke and his colleagues closer to reduce the asset purchase program next month.

The defence

The EUR/PLN was pretty successful in defending the 4.20 mark. However, the slight pressure on the zloty remains and we can not exclude the possibility that the zloty weakens to 4.22-4.23 per the euro (for example on more government debt sell-off).

At 10.00 CET Polish Central Statistical Office (GUS) published the final GDP reading. It confirmed the earlier flash estimates that the economy expanded 1.9% in the 3rd quarter and 0.6% q/q (seasonally adjusted). In the comments for the data both Ernest Pytlarczyk (Bre Bank chief economist) and professor Alicja Zielińska-Głębocka (the MPC member) said on TVN CNBC that finally investments and consumptions picked up. Moreover Zielińska-Głębocka claimed that 2013 GDP growth can reach 1.5% and in 2014 the economy can expand by more than 3%.

Today the zloty should remain fairly stable around 4.20 per the euro. The HCIP inflation from the Eurozone will probably be neutral for the Polish currency (similarly to the reading in October).

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

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