Daily analysis 03.06.2013

Capital outflows from emerging markets. EUR/USD is holding at 1.30 level. What is supporting the EUR/USD? Polish currency is still weak. Global sentiment toward developing economies will shape the PLN in the following weeks.

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

• 09.00 CET: PMI from Poland (survey 47.7)
• PMI readings from Europe – Spain and Italy
• Final readings form Germany, France and the EuroZone
• 16.00 CET: ISM from the States (survey 50.7)

Money outflow form emerging markets. EUR/USD relatively high

Second part of last week was pretty harsh for emerging markets. Not only CEE currencies were under pressure, but almost all developing countries were experiencing capital outflows. The negative sentiment toward that part of the world was also supported by articles in financial press. Both Financial Times and The Wall Street Journal published reports on EM economies. It is worth to note FT publication „ Emerging market currencies suffer heavy losses” and WSJ „ Investors Pull Back From Emerging Markets”. The FT focuses mainly on issues regarding FED expected tapering of QE. It also cites Dagmar Dvorak head of Global Aggregate from Baring Asset Management. She claims that “It has been a very sharp and severe move that caught many people by surprise”. Dvorak also added that her fund “sold some positions in the peso, the rand and the Polish zloty”. On the other hand the “WSJ” focuses more on real money flow. On its graphics, the Journal shows that the net flows into emerging-market stock funds plummeted to negative 2.89 billion USD (worst result in a year), and net flow into EM bond funds was minus 242 million USD (first negative result since 47 weeks). Regarding that we had so many weeks with positive sentiment toward EM (with capital inflows exceeding 1.5 billion on a weekly basis to the bond markets) we can be pretty sure that the recent move is at least a strong correction (or even a more substantial change) then a one week slowdown.

In the last days we had also some interesting developments on EUR/USD. Despite a perspective of soon QE tempering we could observed that eurodollar was pretty resistant to the downside pressure and was using “any excuse” to move higher (weekly jobless claims or 0.1% lower, U.S GDP growth then expected), and at the same time ignoring bullish data for the greenback (Chicago PMI or early morning Chinese manufacturing reports). It seems that some investors are betting for weaker then estimated NPF data. The “game” seems to be short lived and I don't expect the EUR/USD to move above 1.3200 in the near future, unless we see the payrolls under 100k.

The zloty is moving with the EM basket

The zloty weakened in line with its EM peers. Last week we were a shy from 4.3000, levels not seen since 10 months on the EUR/PLN. I don't expect any sentiment change in the following weeks. There is much higher probability that we go further north (above 4.30 and stay there) then the zloty strengthen toward 4.20 per euro. The speed of the PLN loosing its value will be depended on the eco data from Poland and Europe, a more importantly, the global sentiment toward EM economies.

Taking into the account the recent events the targets for EUR/PLN and USD/PLN are around 4.40 and 3.40 respectively. More bullish moves are also expected on CHF/PLN with the target at 3.50 till the end of the month.

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

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

Overall technical situation on the analyzed pairs:

EUR/USD moved over 1.30 and from the technical point of view it can test levels around 1.3200. The PLN is under pressure to all analyzed currencies.

Technical analysis EUR/USD: we are in the middle of 3-month long range trend. Inside the range trend the EUR/USD generated a buy signal with the target toward 1.32. In the medium-term we still waiting for the rise over 1.32 or fall under 1.28. .

Technical analysis EUR/PLN: the pair was moving sideways for 10 months. The range trade trend was between 4.03-4.21, so the move upside should be also around 0.18 PLN. (toward 4.38-4.40).

Technical analysis USD/PLN: on the USD/PLN we are again in the turning point. IF 3.30 does not stop the bullish move then we can expect the rise to continue even toward 3.50. On the other hand it the resistance holds (target already reached) then we can expect the comeback toward 3.2000.

Technical analysis CHF/PLN: recently we had quite a volatile sessions on the CHF/PLN. Last week the lowest point was around 3.32 and the highest 3.47. Similarly other PLN pairs the sentiment is bullish, but large swings are also possible. The target is set now between 3.50-3.52.

Technical analysis GBP/PLN: the pair is still bullish. We are currently trying to move above 5.000 (medium-term pivot point). The next target is around 5.10.