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Daily analysis 30.04.2014

30 Apr 2014 11:10|Marcin Lipka

Inflation data from Germany appeared to be below expectations, which decreases probability of reading for the whole Euro Zone would be consistent with the forecasts. Macro reports should remain in the centre of attention until the end of the week. Along with improvement of global sentiment, the zloty returns under the level of 4.20 per Euro.

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

  • 11.00 CET: Inflation from the Euro Zone (survey: +0.8% r/r).
  • 14.30 CET: ADP report from the American labor market (survey: 210 thousand).
  • 14.30 CET: GDP reading from USA for 1st quarter of 2014 (survey: +1.1% data equalized seasonally, annualized).
  • 15.45 CET: Chicago PMI (estimations: 56.0 points).
  • 20.00 CET: Publication of communicate after Federal Reserve summit.
  • 14.30 CET (Thursday): PCE Consumers' inflation (Fed pays most attention to it), survey: +0.2% m/m.
  • 14.30 CET (Thursday): Weekly data about unemployment benefits from USA (survey: 320 thousand).
  • 16.00 CET (Thursday): ISM Index from the American industry (survey: 54.3 points).
  • 9.00 CET (Friday): Industrial PMI from Poland.
  • 14.30 CET (Friday): Data from the American labour market (survey: new workplaces in non-agricultural sector 215 thousand; unemployment rate 6.6%).

Inflation and flood of data

Yesterday a good run of EUR/USD has been clearly impaired. The level of inflation from Germany which appeared to be below expectations (the estimations were on level of 1.3% r/r, and the real readings were 1.1% r/r), caused a small chance for achieving the data from the whole Euro Zone, convergent with the forecasts. At this moment the market does not expect that we will be capable of managing the forecasts in limits of 0.8% r/r (the figure 0.7% should be already included in the prices) but it can be afraid that the probability of even lower indication is growing. If such scenario occurs, and we would have to deal with HICP on the level of 0.6%, then the influence on EUR/USD can be quite serious and we can find ourselves even below 1.3750, before the series of macro data from USA which are supposed to be announced until the end of the week. However, on the other hand, if the planned 0.8% r/r would be achieved, the main currency pair would have a “good start” before the upcoming publications from the other side of the ocean and a fast comeback in the areas of 1.3850 would be possible.

Upcoming days are a real flood of important macro data. Most of all they will allow answering the question, what does the condition of the American economy on the break of first and second quarter look like, and is its revival strong after the slowdown caused by a severe winter. There is a big probability that the publications from USA will not let us down, and we should receive some solid figures. The market is also gossiping that we may have a very high reading of payrolls this Friday. Estimations appear even in limits of 300 thousand, what would be a very strong increase impulse for the dollar (it could quickly gain even approximately 100 pips to Euro or pound). There are significantly less “surprises” predicted towards the communicate from April summit of Federal Reserve. Second FOMC meeting under the chairmanship of Janet Yellen should not introduce any serious changes to Fed rhetorics (there also will be no press conference), thus it is difficult to expect any bigger movements after 20.00 CET.

Apart from the analysis of current macro data and their deflection in relation the the prognoses, it is also worth taking a look how does EUR/USD react to worse/better than expected publications. If such reaction is moderate (descend) on good data from USA, then we can still expect that the bulls deal cards on the main currency pair and the position of Euro-dollar is strong. However, if we will not start to descend below the level of 1.3750, then it might mean a significant correction of the recent growths and more serious consequences for the upcoming weeks.

Descend below 4.20

Zloty, just as in previous days, behaves according to the regional sentiment. Due to its improvement (Russian rouble or Turkish lira are gaining on their values), we can see some slight descends of EUR/PLN and CHF/PLN to the levels of respectively 4.19 and 3.43. The flood of global macro data should not influence the local quotations in any higher degree. Irrespectively of which way the world's economic reports “flow”, the Euro-zloty pair should move in a thin division of fluctuations. However, we can observe some bigger reactions on USD/PLN, which in dependence from EUR/USD behaviour can either test the recent pits in limits of 3.00 (less probable), or move in the directions of recent resistances (3.05 – 3.06). It is also worth paying attention to the industrial PMI from Poland on Friday. Market's estimations are close to the previous month's readings in the areas of 54 points, however, it is a good idea to read the comment to HSBC and Markit data, in which there should be some entrepreneurs' notifications concerning the situation of trade with the East. Zloty should be relatively resistant, even to a clear deflection from estimated 54 points. However, if we would see the descend of “Logistics Managers Index” below the value of 53, then we can expect a negative reaction on PLN (but not more than 0.02 PLN).

In conclusion, despite from the flood of macro data from all over the world, zloty should be relatively stable. Some bigger movements can be observed if the Friday's PMI from Poland is significantly lower than expected or an unexpected escalation of conflict in the East occurs. Until Friday the base case scenario for EUR/PLN will be the rates in limits of 4.20 (+/- 0.02 PLN), and CHF/PLN should maintain below 3.45.

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

Range EUR/USD 1.3750-1.3850 1.3850-1.3950 1.3650-1.3750
Range EUR/PLN 4.1800-4.2200 4.1800-4.2200 4.1800-4.2200
Range USD/PLN 3.0300-3.0700 3.0100-3.0500 3.0600-3.0800
Range CHF/PLN 3.4200-3.4600 3.4200-3.4600 3.4200-3.4600

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

Range GBP/USD 1.6650-1.6750 1.6750-1.6850 1.6550-1.6650
Range GBP/PLN 5.0500-5.0900 5.0700-5.1100 5.0300-5.0700

30 Apr 2014 11:10|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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