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Daily analysis 30.10.2015

30 Oct 2015 13:26|Marcin Lipka

Slightly better data from the eurozone extend the correction on the EUR/USD. The Bank of Japan does not increase the monetary stimulation. The zloty slightly gains on its value due to better sentiment in the region and speculations about the new minister of finance.

Most important macro data (CET – Central European Time). Estimations of macro data are based on Bloomberg information, unless marked otherwise.

  • 13.30: Quarter reading of the employment costs in the USA (estimations: +0.6% for the third quarter).
  • 13.30: The PCE inflation from the USA (estimations: +0.2% y/y; with exclusion of fuel and food +1.4% y/y).
  • 14.45: The Chicago PMI (estimations: 49.4 points)
  • 15.00: Final reading of consumers' trust index from the University of Michigan (estimations: 92.5 points).
  • 15.00-17.00: Testimony from John Williams of the Federal Reserve at Brookings Institution. Its topic is the monetary policy, so the matters of the interest rates should also appear, at least at the questions & answers session.

Slight improvement in the eurozone

Yesterday's data about German inflation suggested that today's readings from the eurozone may support the common currency. And even though a general increase in prices was coherent with expectations and remained unchanged in October, the change of consumption prices with the exclusion of fuel and food, increased to 1.0% y/y, while the market consensus was 0.9%.

Theoretically the euro can also be supported by a lower reading of unemployment. It decreased to 10.8%, while the expectations were that it will remain on the level of 11.0%. However, it is worth noticing that even if the EBC acknowledges that the latest publications slightly decrease the risk of not fulfilling the inflation goal, the European monetary authorities will be under a strong pressure to increase the range of activities regarding the quantitative easing. That is, of course, if one considers the recent statements from Mario Draghi, and the comments from the EBC’s main economist, Peter Praet. If the above mentioned activities do not occur, it would probably lead to the quick appreciation of the euro. And the EBC is becoming more and more sensitive to the currency channel, which could disturb inflation in reaching its goal.

When it comes to yesterday's macro publications from the USA, they should not clearly disturb the Fed approach to the monetary policy. In the third quarter, the GDP increased practically according to the expectations. The 4-week-long average of the new jobless claims remained on its 40-year minimums. As a result, the current rebound on the euro and a slight wear off on the dollar causing the EUR/USD to go above 1.10, is most likely a correction. Especially that even if the global sentiments clearly improved the global sentiments, we can also assume the depreciation of the euro related to the revival of carry trade, apart from the expected appreciation of the dollar. Both of these factors should cause a decrease in pressure on the main currency pair.

Decision of the BoJ

According to the expectations of the majority of economists, the Bank of Japan (BoJ) decided today that it will leave the purchase of assets on the market at the current level. However, some representatives of the commercial banks expected that the QE operations of the BoJ, may increase from the current 80 trillion JPY per year, up to 100 trillion JPY. It is worth noticing that the monetary easing in Japan is the most aggressive of all the developed economies.

Additionally, Haruhiko Kuroda has clearly decided to wait for the decisions from the Federal Reserve. Monetary tightening in the USA will most likely allow the USD/JPY pair to grow, which means a wear off on the yen to the dollar. Additionally, a decrease in the cost of credit in China, and also a slight fiscal stimulation with maintenance of the dollar/renminbi rate on the same level by the PBOC, should also cause an increase in demand for the Japanese products in China.

Thus, it is possible that the BoJ will for now cease the monetary easing. Additionally, the situation on the Japanese labour market looks better and better. Unemployment remains below 3.5%, and the number of future job offers is larger than the amount of candidates. This should support an increase in salaries and also increase inflation when the effect of lower prices of fuel will begin to disappear. Thus, the USD/JPY will probably remain under a slight pressure until the monetary tightening in the USA. On the other hand, the EUR/JPY may depreciate even more due to the BoJ ceasing further stimulation.

Few words about the foreign market

Today, investors should focus on the publications from the USA. An increase in the costs of employment for the recent quarter and the base case inflation of the PCE are most significant. Today's testimony from John Williams at Brookings Institution is also worth noting. The San Francisco Fed representative should sustain the suggestions regarding an increase in interest rates from Wednesday's announcement from the FOMC. This should be positive for the dollar, and cause a decrease in pressure on the EUR/USD.

Zloty works off the losses

Today's quotations of the zloty were supported by the morning information from “Polska The Times”. It said that there is a “possibility” that the new minister of finance will be Mateusz Morawiecki, the current president of the BZ WBK bank. If this news appears to be true, it could support the national currency and cause the EUR/PLN to go below 4.25.

A short comment regarding the zloty was also published by the Goldman Sachs. Magdalena Polan, the “GS” economist wrote that the zloty should “regain some strength”, because PiS will probably “limit their promises from before the elections”. Apart from the matters related to the elections, it is also worth focusing on today's report from the Eurostat, regarding the unemployment in Poland.

It decreased to the level of 7.1%, and is only by 0.3% larger than the historical minimums recorded in 2008. It is also worth noting that the average level of unemployment in the European Union is 9.3% and in the eurozone 10.8%. Thus, if the political situation stabilizes, and the Monday's PMI of the Polish industry reaches a reading which is at least close to the estimations on the level of 51.4 points, the EUR/PLN may go below 4.25 already at the beginning of next week.

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

Range EUR/USD 1.0950-1.1050 1.1050-1.1150 1.0850-1.0950
Range EUR/PLN 4.2400-4.2800 4.2400-4.2800 4.2400-4.2800
Range USD/PLN 3.8600-3.9000 3.8200-3.8600 3.9000-3.9400
Range CHF/PLN 3.9000-3.9400 3.9000-3.9400 3.9000-3.9400

Anticipated GBP/PLN levels according to the GBP/USD rate:

Range GBP/USD 1.5350-1.5450 1.5250-1.5350 1.5450-1.5550
Range GBP/PLN 5.9200-5.9600 5.8800-5.9200 5.9600-6.0000

30 Oct 2015 13:26|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:

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