Daily analysis 09.01.2013

France downgrade rumors put pressure on EUR/USD and kept it under 1.3100 level. Better then expected results from Alcoa and quite successful ESM debt auction should reduce the risk aversion. In Poland investors will focus on MPC decision. It is also worth to mention a significant fall of 10 year debt yield and EUR bond auction.

Macro data (CET- Central European Time):

• 11.00 CET: industrial production from Germany (survey: +1% m/m)
• Between 12.00 CET and 14.00 CET we should receive data regarding interest rate decision in Poland (0.25% reduction is expected to 4% level)
• 16.00 CET: MPC conference

France, ESM, and Alcoa.

Tuesday could had ended without any events. There were no major macro reports and investors had several hours before starting positioning to the EBC meeting. The overall calmness was disturbed by rumors regarding France downgrade. Even though it was immediately denied EUR/USD was not able to come back above 1.3100 level. The element which should have increased the risk appetite was the first ESM debt auction. 3-month notes were sold at yields minus 0.0324, and according to The Wall Street Journal the bid-to-cover ration was 3.2. The yields on German 3-month papers traded on the secondary market yielded at minus 0.04% what means that the credibility of ESM is equal to German. What is interesting the information was omitted by investors despite that few months ago many analyst claimed that ESM creditworthiness was much lower then the German one. No impact on eurodollar had also better then expected (both in terms of revenue and net profit) Alcoa report. Although the Q4 earning season really starts next week with reports from GE, BoA, JP Morgan, Goldman Sachs, and American Express), the largest aluminum producer very often sets the tone. Lack of positive reaction regarding the mentioned events does not mean that EUR/USD is prone to the downside move. The markets are waiting for the EBC decision. If Mario Draghi does not lower the interest rates and does not go into negative deposit rate, we can expect the upside move to price in the recent positive developments.

Some positive info form PLN. MPC rate decision in focus.

Yesterday I did point out many elements which can put pressure on PLN. Some of them were already denied by Tuesday's events. First of all the yields on 10 years debt again is heading toward record low levels with drop of 11 bps on the last session. Secondly the Ministry of Finance managed to sell 1 billion EUR denominated bonds at record low yield – 1.705% (only 65 basis points above the benchmark mid-swap yield ) and secured almost 100% of foreign currency borrowing needs. Coming back to the news of the day I don't expect any extreme events – 50 bps cut (what could weaken zloty by 0.02 PLN or leaving rates unchanged (what could result in appreciation move 0,02-0.04 PLN). It is worth however, to listen the conference to get any clue whether Belka would like to wait with the next rate cut till the next inflation forecast (what will delay the decision to March and will give some boost to the PLN) or he will give a clear hint that February's decrease is certain (what can put light pressure on the Polish currency).

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

Technical analysis EUR/USD: it is still more possible that EUR/USD goes lower toward 1.2900 then comes back above 1.3150 and resume its rally. However the longer it stays above 1.3000 the chances for the downside move are lowering.

Technical analysis EUR/PLN: we are still on the resistance level (50 DMA and 23.6% Fibonacci retracement level). The breakout of this levels opens the way to 4.1650-4.1800. If the EUR/PLN bounce back from 4.1200 we can see the come back to the range trade (4.06-4.12).

Technical analysis USD/PLN: the probability for the bullish move with 3.2200 target is still more possible than the comeback to the bearish trend. The longs should reduce their positions when USD/PLN slides under 3.1100.

Technical analysis CHF/PLN: CHF/PLN is again tying to break resistance level around 3.41 (50 DMA and 23.6% Fibonacci retracement level). The breakout of that level increase the odds for move toward 3.46 (200 DMA and 38.2% Fibonacci retracement. On the other hand if 3.41 holds we can come back to the range trade (3.36-3.40)