Daily analysis 06.11.2013

, author:

Marcin Lipka

We are still trading around 1.3500 on the EUR/USD. Solid US ISM reading and record high PMI from the UK. The FOMC member John Williams on monetary policy and unemployment. The zloty is still stable to the euro and franc, but weaker to the pound.

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

  • 16.00 CET: Polish MPC statement and Marek Belka conference.

Narrow range. ISM and PMI. Another FOMC opinion

The EUR/USD had tested the previous lows (1.3450) yesterday, but the rate came back to around 1.3500 at the beginning of the European session. Investors are still waiting for the ECB rate decision and jobs report on Friday.

Surprisingly solid ISM data were reported on Wednesday. The reading was both much higher than expected (55.4 vs 54.4) and above the previous month result. What is more interesting it didn't show any government shutdown impact. The employment subindex rose to 56.2 points despite that some respondents indicated a negative outcome from the fiscal issues. In result it is possible that the NFP does not have to be as dire as expected (120k) and therefore the Federal Reserve will not have to wait till March to taper and start the winding-down operation as soon as in December. The similar opinion was shared by the currency investors who pushed the EUR/USD to the day's lows just after the data hit the wires.

On Wednesday the British pound was a real star. It was a result of the strongest in 16 years PMI services from the UK (62.5 points). Surprisingly solid data was also reported by the employment subindex (also 16-year highs). In the comments to the PMI, Chris Williamson, chief market economist said that “The buoyant survey data are likely to encourage the Bank of England to raise its forecasts for economic growth when it publishes its new projections in November. The Bank is also likely to bring forward its expectation of when unemployment will fall below 7%, the threshold needed to be reached before the Bank will consider raising interest rates.” The last sentence from the commentary was the main reason why the sterling jumped 100 pips.

Regarding the monetary policy context it is worth to cite San Francisco Fed President (light dove, non-voting both this and next year). John Williams (In May, before Bernanke famous comments, was saying that the Federal Reserve can start the tapering in Summer) claims that (according to “The Wall Street Journal” it has improved since the last QE operation started. Williams says, however, that “The data over the last several months have kind of undermined a little bit that confidence that we are going to continue to make that kind of progress without continued monetary support,”. It confirms the opinion that the incoming jobs reports will be key to the tapering decision.

Summarizing, investors will have to wait for the ECB meeting and the Friday NFP data. It will allow to answer for two key issues: whether the ECB is concerned with the low inflation and how long the full QE will be continued. These are the major questions for the EUR/USD performance.


The euro, franc and the dollar were fairly stable yesterday and were traded around 4.18, 3.10 and 3.40 respectively. Only the pound strengthened significantly to the polish currency. It was directly caused by the solid data from the UK.

Today the situation on the market will be probably stable. The MPC will not change the interest rates, and the only question mark will be the time horizon regarding the forward guidance. Professor Belka and his colleagues can either extend the neutral monetary policy till the end of Q1 or extend it toward the beginning of the 2nd half of 2014. We will also get inflation and gdp projection from the Central Bank (more details in a few days are expected).

Summarizing the zloty will be fairly stable in the coming hours. More volatility is expected on Thursday and Friday (especially on the USD/PLN and GBP/PLN) which will be a direct result from the global events.

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

Range EUR/USD 1.3450-1.3550 1.3550-1.3650 1.3350-1.3450
Range EUR/PLN 4.1600-4.2000 4.1600-4.2000 4.1600-4.2000
Range USD/PLN 3.0800-3.1200 3.0500-3.0900 3.1100-3.1500
Range CHF/PLN 3.3800-3.4200 3.3800-3.4200 3.3800-3.4200

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

Range GBP/USD 1.5950-1.6050 1.6050-1.6150 1.5850-1.5950
Range GBP/PLN 4.9100-4.9500 49300-4.9700 4.8900-4.9300

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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 the written permission from Sp. z o.o is prohibited.

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