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Daily analysis 30.01.2015

30 Jan 2015 12:37|Marcin Lipka

Speculations on SNB intervention are weighting on the Swiss currency but the base case scenario is not a significant CHF depreciation toward the euro. Danish central bank third time in two weeks cut interest rates. The Russian MPC cut the benchmark pushing down the ruble toward 70 mark per dollar. Crucial days ahead on the zloty.

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

  • 14.30 CET: US GDP reading (median survey: +3.0% q/q, seasonally adjusted annualized data; range between +1.8% and +3.6%).
  • 15.45 CET: Chicago PMI (survey 57.5 points).
  • Monday 9.00 CET: Manufacturing PMI from Poland (survey 53.1 points).

Significant changes on the Swiss franc

The Swiss currency market is still fairly volatile and many moves are generated on the rumors basis. Today the franc significantly weakened toward the euro and around 9.00 CET the EUR/CHF rate tested 1.05 what also translated into a fall of CHF/PLN toward 4.00.

Around 100 pips move in the morning was caused by expectations before publication on foreign reserve data at the end of 4th quarter. It is hard to say what traders expected from the reading especially that data from separate months was already available and it was clear that bank assets increased around 40 billion CHF.

The expectations were also confirmed that most of the reserve appreciation was caused by buying assets denominated in euro (around 20 billion euro) and dollar (6 billion USD). However, we still don't know how the situation was shaped after the minimal rate was scrapped on January 15th.

There are some speculation that the SNB may be present on the currency market. CNBC quotes a senior dealer from London who claims that actually nobody knows whether the SNB intervenes or not but there are expectations that the central bank is going to target the basket of currencies and not the single one.

It also confirms cited by us on Wednesday article for the Swiss press where the SNB member claimed that the central bank would like to look at solutions used in Singapore where the MPC intervenes to keep the currency basket fairly stable.

Regarding the following days on franc the EUR/CHF should keep most of the recent gains but it should not be expected that the pace of appreciation may be held and the move above 1.05-1.06 is less probable. It also translates that there is a small chance that CHF/PLN drops below 3.90.

Denmark tires to minimize the capital inflow

Denmark third time in two weeks cut the interest rates. Currently the deposit facility charges investors 0.5% annually. The MPC tries to keep away significant inflow of portfolio capital which threatens the krone peg to the euro.

Besides negative rates the central bank also sells local currency. According to cited by Bloomberg Handelsbanken Copenhagen sold up to 100 billion DKK (15 billion USD) in January to prevent the krone appreciation. Some of speculative funds try to create enough buzz and push Denmark to abolish the peg.

However, currently the odds to realize that scenario are pretty low. There is much higher probability that monetary authorities would be able to deal with the issue successfully and, despite some hints from our intuition, the peg should remain in place.

70 ruble per the dollar after the interest rate cut

The Russian central bank (CBR) decided to lower the benchmark from 17.00 % to 15.00% despite that 31 out of 32 economists predicted no change. According to the statement put by the CBR on its website the MPC claims that inflation expectations stabilizes and inflation at the beginning of 2016 will be lower than 10%

It is a negative info for the local currency and pushes the rubel above 70 mark per the dollar. On the other hand if in the mid term the oil stops it decelerating trend some money loosening should be helpful for the economy which is in a trap between diminishing revenues from commodities and restrictive monetary policy. Currently the target for USD/RUB moves toward 70-75 range with increasing odds that at some time it may revisit the 80 level.

Foreign market in a few sentences

The euro zone inflation at minus 0.6% hasn't changed much the situation on the EUR/USD. However, a more sustained impact may come from the US GDP. The consensus is at 3% (annualized, seasonally adjusted q/q). However, taking into the account a large division in the projections (between 1.8% and 3.6%) shows a large probability of more significant surprise. As a result reading at 2.5% and below may weaken the dollar, but increase above 4% is a chance for the EUR/USD to drop below 1.13.

Foreign market in a few sentences

The probability of more significant zloty appreciation has increased and if there is no unexpected event it the EUR/PLN should drop below 4.20 very soon. In the following days there are two key events.

The first one is manufacturing PMI reading. If the data turns out to be in line with economists expectations (above 53 points) it will be a positive signal for the zloty. Another element is keeping the rates unchanged on Wednesday. If both conditions are met the base scenario for the EUR/PLN to finish the next week around 4.15 increases markedly.

It would also cause a fall of CHF/PLN below 4.00 and increase the odds that franc stays below that level for longer. Today, however, the market will not have enough momentum to finish the week below 4.20 on EUR/PLN or 4.00 on franc. But the sentiment on the PLN is still positive.

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 4.2000-4.2400 4.2000-4.2400 4.2000-4.2400
Range USD/PLN 3.7100-3.7500 3.7300-3.7700 3.6900-3.7100
Range CHF/PLN 4.0000-4.0600 4.0000-4.0600 4.0000-4.0600

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 5.5900-5.6300 5.5700-5.6100 5.6100-5.6500


30 Jan 2015 12:37|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.

See also:

29 Jan 2015 17:29

Afternoon analysis 29.01.2015

29 Jan 2015 12:45

Daily analysis 29.01.2015

28 Jan 2015 17:19

Afternoon analysis 28.01.2015

28 Jan 2015 13:12

Daily analysis 28.01.2015

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