Daily analysis 29.12.2014

Greek voting is the only important event today. Bundesbank chief seems to be fairly optimistic on European economy. Russian currency stays around 55 ruble per dollar, but the prospects for the economy are bearish. The zloty returns toward 4.30 after a significant slump during the holiday weak.

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

• No major macroeconomic events that may affect analyzed pairs.

Greece and Bundesbank

Around the noon CET investors should receive information whether the Greek parliament manged to elect the president. The coalition candidate needs 180 votes but the New Democracy and PASOK hold only 155 seats. In the previous week Samaras managed to convince several MP-s to increase the support for a former EU commissioner, but it was still not enough (168). Even if the result is repeated, this time it will still be short of 12 votes.

In a scenario where the president fails to get enough votes, Greece will have to face a snap election at the end of January. The voting will be probably won by Radical Left party. Syriza plans to resign from austerity policy and reforms required by Troika. It also can push Athens again to the headlines of the financial media which is a negative outcome for the whole Union.

Some bullish comments came from Jens Weidmann. The Bundesbank chief told Frankfurter Allgemeine Sonntagszeitung that “Europe isn't in as bad shape as many believe, economic forecasts predict a recovery in the euro area” and “cheap oil is acting like a stimulus package”.

Weidmann also commented a discussion on monetary policy claiming that “it irritates me that in the public debate only one question has arisen lately: when will you finally start buying?”. However, regardless of how irritated Weidmann is, Draghi will be able to form a coalition to push forward another step of monetary easing and from January the real discussion regarding that subject is going to heat up.

The rouble has been stabilized, but the economy is facing more troubles

Russian authorities managed to stabilize the rouble and probably the USD/RUB pair will be traded between 55-65 level in the following weeks. Another set of data from our East neighbor is less optimistic. In November the GDP shrank 0.5% y/y what was the lowest reading since 2009.

The outlook looks also quite grim and confirms previous central bank expectations. According to finance ministry if Brent stays around 60 USD per barrel, the Kremlin will have to face 4 percent recession in 2015. A significant slowdown may be also faced by manufacturing. The PMI published by the HSBC dropped to 48.9 points and the result below 50 predicts a contraction of the sector.

Foreign market in a few sentences

The news of the day is Geek election. Taking into account the unusual shifts in the Athens' politics we should not rule out a positive outcome. It should bring a relief rally to the EUR/USD but the move will be fairly limited. On the other hand, if it turns out that Hellas should prepare for January snap election we are going to face weeks-long discussion on Greece, which is supposed to be negative to the euro.

Christmas belonged to speculators

The situation which was faced by the zloty provoked us to publish special analysis on Saturday. We suggested that if the EUR/PLN fails to come back on Monday toward 4.30 than we should face the NBP or BGK intervention. This time the market manged to return toward equilibrium but the situation should not be ignored. Institutions are supposed to look closer toward the issue and analyze how to prevent such events in the past.

A very easy drop of the Polish currency to 4.40 per the euro may lure some speculators to prepare another attempts to destabilize the situation either by the strong depreciation or appreciation of the currency. As a result costs for companies to hedge the currency positions are going to rise and the stabilization policy would be more costly. The turmoil may also generate a wave o comments in the foreign press which undermines success of Polish local “safe haven”.

Today the zloty should strengthen further and we may finish the year around 4.20 on the EUR/PLN and 3.55 on CHF/PLN.

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

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