Daily analysis 02.10.2013

Good makro data from USA and growth in American stock exchange have let the dollar make up for the morning losses. Big chance for the Letta government to last in Italy. Draghiegi conference after the EBC session. In Poland there finally a decision concerning the interest rates has been made. The zloty remains stable.

• The most important makro data (CET- Central European Time). Survey is supplied by Bloomberg unless noted otherwise.
• Between 12.00 CET and 14.00 CET: A decision concerning the interest rates (survey: 2.5%, no change).
• 13.45 CET: A decision concerning the interest rates in euroland (survey: no change at 0.5%).
• 14.15 CET: The American labor market APD report. Estimates are about 180,000. Given the uncertainty concerning the NFP on Friday, today’s report might be of greater importance than usual.
• 14.30 CET: Conference of the EBC President, Mario Draghi.
• 16.00 CET: The communicate and conference after the Monetary Policy Council by Marek Belka.

USA. Makro data. Italy. EBC

EUR/USD growth on Tuesday morning did not continue for the rest of the day. This was caused among others by mediocre PMI data from the euroland and very good ISM report (along with the employment sub-index), as weel as change for the better at the stock exchange, showing that the government shutdown might not be as much of a threat as some expected. We are now back at the starting point (about 1.3520) and returned to almost two week-long sideways trend.

Yet another day with the macroeconomic data. The private agency ADP report will be possibly analysed more carefully than usual as the publishing of the American labor market report on Friday may never happen. According to estimates, September will show an increase of 180,000 jobs, although that does not bring us any closer to reducing the quantitative easing. Only the number of 200,000 can cause the strengthening of the dollar. Considering the economic reports confusion concerning forced “vacation” of some of the federal employees, here is The Wall Street Journal’s economic reports calendar. Keep in mind that this is not its final form (especially that we still are not certain about the payrolls) http://blogs.wsj.com/economics/2013/10/01/how-to-track-the-economy-during-a-government-shutdown/, but it’s worth knowing which of the reports might be threatened.

The EUR/USD market has ignored the political unrest in Italy lately. It came as no surprise that it did not react optimistic to its possible end. There is a high possibility that the Enrico Letta government will live through the coalition crisis. The Financial Times reports that the Secretary of Silvo Berlusconi party, Angelino Alfano has said that the party should support the government in voting on a volte of confidence. It is against the views of Berlusconi himself, which can mean a sudden end of the controversial politician. The exchange listings in Milan went up by over 3% and the Italian 10-year bond yields fell by 15 points in reaction to the news about possible maintaining coalition.

Apart from reports from over the ocean, the Wednesday’s trading will be determined by the EBC meeting. The economists do not expect the interst rates cuts, however, Mario Draghi will want to sound as dovish as possible. Latest increase of EUR/USD causing lesser competitiveness of the euroland, low inflation and unsatisfactory lending result in the increase of the especulation on possible interest rates reduction or the next LTRO operation. The former seems improbable. Also the possibility of introducing another LTRO is lower than 50% - especially when EBC wishes to keep this instrument for (hypothetical) market turbulence related to the future QE reduction by FED. No specific EBC actions and focusing on forward guidance should remain neutral for EUR/USD. LTRO and, most of all, reduction of interest rates would overestimate the Europan currency significantly.

Summarizing, today we have two mains events coming: the ADP publication and the EBC statement. In view of possible lack of NFP report, the ADP report may be of greater influence than usual. Greatly increased volatility can be also viewed during the EBC meeting. However, with no definite decisions we should remain around the level of 1.35.

Monetary Policy Council decides today

Another day of sleepy trade at the domestic currency market. Despite many events on the global market the Polish zloty is exceptionally stable. If there is no clear signals from the underlying markets (USA because of ADP and Europe after Draghi conference), this situation should not change today.

The decision of Monetary Policy Council should not be too exciting as well. The Council definitily will not change its monetary policy and the statement should sugest leaving the money cost unchanged. However, during the conference the Head of National Bank of Poland, Marek Belka, may confirm his latest suggestions about leaving the interest rates at the same level until mid-2014. This should in no way influence the quotes of Polish zloty, though.

The baseline scenario on EUR/PLN remains at the same level around 4.22. Only significant changes of EUR/USD would cause breaking out of stagnation of the domestic currency.

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 around 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.