Daily analysis 30.12.2013

Temporary approach of EUR/USD on the 1.3900 level, and afterwards a strong working off. Weidmann and Draghi on interest rates in Euro Zone. Another record of Thurkish lira's weakness. Zloty tested the 4.13 level in relation to euro and 2.99 per dollar. Today we are about 2 groschens higher.

Most important macro data (CET). Estimations for macro data are based on Bloomberg's information, unless marked otherwise.

• Apart from the market consensus, we will publish the expectations division for some macro data. It often happens, that the market reaction is biggest, when macroeconomic reports are beyond the range of extreme predictions.
• No macro data.

Bouncing in areas of 1.3900. ECB. Turkey

Low fluency on EUR/USD market and speculations (rather unjustified, because the topic it not new) on the necessity of purchasing euro by some of smaller European banks (AQR report made by ECB, which is a review of assets quality, which can show that financial institutions need extra funds and buy EUR) caused the bouncing of main currency pair to the areas of 1.3900. This movement was temporary though and with Friday's session passing, we slowly came back to the middle areas of 1.37. If such event would occur during the normal investors' activity, it could be taken as an omen of significant correction (usually failed bouncing ups should effect in stronger decreases). In this case though, bulls with a participation of small capital, activated the significant deposits of “stop-loss's” placed close to the last heights and thanks to that they have easily managed to “download” 150-200 pips each. I would consider it more as a one-time event which should not influence trend's further fate.

Still during the Friday's session, Weidmann's statement (for Bild journal) went on the market, in which he claims that “we have to be more interested in raising the interest rates when the inflation pressure appears” (quoted from Bloomberg). The opinion of this Bundesbank's president and ECB member is hawkish, although at the moment and at least for next 12 months it is a very impossible scenario. We should pay more of our attention to Mario Draghi's Saturday interview for Spiegel magazine. ECB president asked about the further interest rates decrease, have said that (quotes from Reuters) “in this moment there is no urgent need of decreasing them”. Draghi also stated on the current economic situation of Euro Zone, claiming that though the crisis has not been defeated yet, there are many optimistic assumptions, such as economic revival in some countries, decrease of trade imbalances and decreasing budget deficits. ECB president does not see the deflation threat, but in his opinion we need to be cautious “so that the inflation would not stay permanently below 1%”. Draghi's statements are covering with the general ECB's point of view, presented on the last summit and they should not influence the market in a significant way.

There is still a big nervousness on Turkish lira, which on Friday was again record weak comparing to the main currencies. EUR/TRY pair has crossed the level of 3.00 and USD/TRY reached 2.17. Throughout last two weeks, which is from the beginning of political crisis. The local currency has weakened by about 6%. Lira looses on its value, despite that the central bank intervenes on the market everyday by selling few hundred millions of euro. Apart form the informations which I have presented in previous comments, it is worthy to quote Tim Ash's statement from Friday's issue of The Wall Street Journal. President of rising markets in London's Standard Bank has said, that “if Basci (president of Turkey's central bank – author's footnote) is determined to keep lira's rate, he should do more than just use the reserves and he should clearly increase the interest rates (although that would be negative for the growth of GDP – author's footnote)”. Ash also notices that apart from the high deficit on the current turnovers calculation (7-8% of GDP – author's footnote) the debt of 162 billion USD will cave in within the next 12 months. Despite that most of it belongs to the private sector (140 billion) – article form September's issue of Financial Times „Turkey's short-term debt: it's bit, but how problematic?”, it still means that significantly weakening lira increases the cost of these obligations service, and causes unusual nervousness on the FX market at the same time (e.g. because of the necessity of securing the positions).

Sygnalizowany przeze mnie wzrost zmienności (zgodny z kierunkiem trendu) w okresie świątecznym zmaterializował się. Obecnie do końca roku nie powinniśmy już obserwować tak znacznych ruchów i najbliższe sesje powinny przebiegać w rejonie 1.3700 na EUR/USD.

Descend below 3.00 per dollar

The bounce of EUR/USD also caused a significant changes on national currency market. On Friday, for the first time in two years, the dollar's price was below 3.00 zloty. Even though this level did not held up until the end of the session, the strength of Polish currency in relation to American dollar has been again clearly confirmed. Less ambitions was shown on EUR/PLN and CHF/PLN, which after reaching lower levels, respectively 4.12 and 3.36, gave back most of their descends and closed the day on the level higher by 2 groschen. Such testing the new levels by the market, can be characteristic for the inauguration of stronger trend of national currency's enforcement. The confirmation of the above theory should be PLN behavior in first weeks of new year. If the present levels will remain constant or we will descend on the areas of 4.10 on EUR/PLN, it will show a significant probability of the descend below the boarder of 4.00 per euro.

In conclusion, we should not observe significant changes on national currency market until the end of the year. December will probably be finished in the areas of 4.15 per euro, 3.38 per frank and a bit more than 3.00 per American dollar.

Expected divisions of zloty pairs determined by the EUR/USD rate:

Expected levels of GBP/PLN rate determined by GBP/USD: