Daily analysis 01.10.2013

As no budget compromise has been reached, partial shutdown of the US federal institutions began. Is there going to be a publication of the report of the U.S. labor market on Friday? Makro data from Europe. The zloty still steady, with no specific direction, despite good PMI data.

• The most important makro data (CET- Central European Time). Survey is supplied by Bloomberg unless noted otherwise.
• PMI data from Europe and Poland already published.
• 16.00 CET: Read of the industrial ISM from USA (survey: 55 points).

EUR/USD up high. US budget. Makro data

Today’s session was opened by getting out of the lasting for over a week sideways trend. Currently we are at the level of 1.3580 on EUR/USD and the bulls give to understand that the situation clearly favors them. That growth is motivated by globally weaker dollar. The US budget trouble is an argument for longer quantitative loosening, meaning more pressure onto a buck. It is now a much more actively forced strategy than a general increase in risk aversion on the market and an immediate strengthening of that currency. Another argument (although not necessarily pro growth) might be the makro data, however, their influence currently decreased (apart from Friday’s report from the labor market, although it does not have to be published at all due to the governement shutdown).

The econimists estimate that if work stoppages at some government institutions (about 800,000 people) last for two weeks (that is, until the much more important decision is made - the debt limit increase) it would lower Gross domestic product would decrease by 0.2-0.3 per cent in Q3 (annualized). In the past this happened over a dozen times (the last one was at the tun of 1995 and 1996), however, its influence on the market was limited and short-lived. Is this going to be the case? That depends on the way the Congress handles the problem. Days to come are for the Democrates and the Republicanes to work out a budget compromise and to make a decision about the debt limit increase. Until then the American currency may be under further pressure for political reasons.

Questions about the Friday’s report from the labor market remain unanswered. The shutdown of certain government institutions interfers not only with the Department of Labor data, but also the Department of Commerce data, which among the others publishes the reports on the industrial orders. Getting back to the NFP - it is not clear if this report is going to be presented to the market. On today’s WSJ article Eric Morath presents contradictory information about the Friday’s reports. One of the possibilities is the usual payrolls publishings (during the similar situation in 1995 the inflation data were published) or delaying the unemployment rate annoucement or NFP reports for a few days. However, the weekly unemployment benefits applications should be published normally as they are developed not at the federal level, but at the state one.

Between 9.00 am and 10.00 am the final PMI reports from Europe will be published. The data from the core of Europe (France, Germany) are close to the initial estimates and the reports from the periphery of Europe (Spain, Italy) are a little below the consensus, although they are still 50 points above the border separating the development and regression. Hence PMI shoud have slightly negative, though short-lived, influene on the common currency.

In conclusion, the American budget situation comes to the fore. As long as this problem is not dealt with and the debit limit is not increased (the deadline is October 17), the dollar should remain under pressure. The makroeconimc data is going to be of second importance (apart from NFP, if - of course - they will be published).

Calm zloty. Strong PMI

The domestic currency is stable and moves steady towards 4.22 for euro. Thequiet stable on the PLN was not disturbed even by the report of the balance on the current account for Q2 (much lower surplus than expected) or much better PMI from Poland. The latter were in fact a surprise. Reports from HSBC and Markit describing the moods of tge logistic managers in companies is at two year high now and is currently at 53.1 point. It is worth mentioning that employment rate is at six years high, which - as Agata Urbańska-Gier, the HSBC Central and Eastern Europe economist states - “is especially promising given the frail labor market and the weak consumer demand mid-2012. HSBC estimates that in 2014 the economic growth will be at 2.6% which is close to the government expectations.

Summarizing, the zloty remains stable. There are many elements that can change this situation on the horizon (EBC on Thursday, NFP on Friday, deterioration in global sentiment, etc.), however, latest immunity of domestic currency might result in the zloty’s remaining stable towards euro even in case of significant response of global investors.

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

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

The general technical situation of the discussed currency pairs:

A breakout above 1.3400 was another bullish signal for EUR/USD and a confirmation for the move toward the next major target at 1.3650.All PLN pairs are in bearish trends.

Technical analysis EUR/USD: the target set by AT is arounfd 1.3650 and in the extension even 1.4000. Sliding below 1.3400 generates a signal to take long positions with the first target around 1.3200.

Technical analysis EUR/PLN: the comeback over 4.22 is a bullish signal with the first target at 4.26 and the next is 4.30. The alternative sliding under 4.18 is a signal to take short positions with the target at 4.10.

Technical analysis USD/PLN: the target for USD/PLN is still 3.05 (to which we were close). We are down more than 0.15 PLN since the sell signal was generated. Shorts are preferred until we rise above 3.15.

Technical analysis CHF/PLN: the comeback under 3.43 negates the buy signal. Now the base case scenario is a range trade between 3.40-3.45. Sliding under 3.40 generates a sell signal with target at 3.33.

Technical analysis GBP/PLN: the sell signal was generated with the first target at 4.93 and another at 4.85. The comeback to the bullish trend is generated above 5.03.