Daily analysis 09.10.2012

, author:

Marcin Lipka

On Monday both currencies and equities enjoyed low volatility. Today the risk off sentiment is taking the markets during the Mario Draghi conference.

Monday's session was characterized by low volatility. The U.S stock market was in the „waiting for earnings” mood and the EUR/USD didn't take advantage of the bearish move. Both PLN and EUR/USD finished the day unchanged.

IMF and the Eurogroup discussed the crisis issues yesterday. They praised Portugal for reforms and austerity programs. It is also expected that Lisbon will be able re enter the regular bond market in the next 12 months. On the other hand there are still differences between IMF and European finance ministers concerning allowing Greece to extend its reform time frame. IF more liberal Monetary Fund is agreed the market suppose to react positively. Some details about that matter can be revealed today by Angela Merkel in Athens. The more benign approach the more positive reactions is expected on the markets.

During the Asian trading IMF published new global growth forecast for 2012 and 2013. Both estimates were downgraded. However the markets in Asia didn't seem to be concerned about the news taking positive approach: „If the growth is lower, China will broaden its fiscal and monetary stimulus”.

The beginning of the European session was relatively positive. The mood was spoiled by Mario Draghi speech where he warned that lack of reforms can have fatal effects. That is nothing new obviously but combining this message with fears of Angela Merkel visit caused markets to slide and changed the mood to risk off. Following the worsening sentiment we could also observe weakening PLN especially USD/PLN cross which depreciated 0.02 PLN from 3.1330 to 3.1530. The move on the EUR/PLN was slighter and has not exceeded 0.01 PLN (currently at 4.0700). We don't see any negative sentiment on the Polish bond market. 10 year government yield is close to its multai year lows at 4.65%. If the does not worsen much (EUR/USD above 1.2900, stable U.S equities) EUR/PLN should stay at current levels. On the other hand if we see risk on sentiment afternoon there is a high chance to attack the support level at 4.0500 on EUR/PLN.

Expected levels depending on EUR/USD value:

EUR/USD 1.2850-1.2950 1.2950-1.3050 1.3050-1.3150
EUR/PLN 4.0900-4.0700 4.0700-4.0500 4.0500-4.0300
USD/PLN 3.1800-3.1400 3.1400-3.1000 3.1000-3.0600

Technical EUR/USD: in the morning there was a chance that the main currency pair will come back above 1.3000. The rapid change in sentiment caused EUR/USD to test support level around 1.2900(23.6% retracement level and the uptrend line). If we close under 1.2900 it will be a strong signal to extend the correction and falling to the range of 1,2770-1.2740 (200 MA and 50 MA). If we close above 1.2970 we can expect another attack for the recent highs.

Technical EUR/PLN: contrary to EUR/USD, PLN stays strong to EUR. On the chart there is no imminent risk to the trend. I still expeect that August's lows will be tested. If not the move above 4.1200 level will give a stronger signal and upward move to 4.2000 level.

Technical USD/PLN: the odds are rising that PLN depreciate to USD especially if we breach 3.1800-3.2000 level. If this happens there is more than 50% chance to extend the correction move to the levels around 3.2700-3.2900 (between 200 MA and 50% Fibonacci retracement). Staying below 3.1800 means there is still higher probability that we move lower than higher.

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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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