Daily analysis 03.07.2013

The USD/JPY rise initiated a fall on the EUR/USD yesterday. Another day with PMIs – this time from the service sector. In the U.S we have a set of data – ADP and services ISM. In Poland the main event will be interest rate decision and a statement which can shape the monetary policy for the following months.

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

• Final services readings from Germany, France and the Euro Zone
• 9.15 CET: services PMI from Spain (47.6)
• 9.45 CET: services PMI form Italy (47.0)
• Between 12.00 CET and 14.00 CET – Polish MPC rate decision (survey 25 bps cut to 2.5%
• 14.15 CET: ADP employment report (survey: 160k)
• 16.00 CET: services ISM from the States (survey 54)

The EUR/USD falls below 1.30.

Yesterday we were suppose to have a calm day and got prepared for the second half of the week. The market proved again that it is not in favor of any stabilization. This time a move was generated just before the U.S session started and came form the USD/JPY pair. It rose to over 100 yen per dollar pushed the EUR/USD under 1.30. The eurodollar tried to regain some ground, but after better-then-expected data form the U.S (factory orders were a bit higher then expected and previous report was revised upwards) and no new message form the William Dudley statement we ended the day around 1.2970

Today we have a set of macro data. I don't expect that the services PMI from Europe change the situation on the EUR/USD. Firstly, the reading in case of France and Germany are final (not suppose to be much different then the preliminary) and secondly the market has discounted on Monday the positive data form the manufacturing part of the PMI (usually correlated, so the market also expect some solid info services). The EUR/USD bulls can expect some relief from the U.S data, but the reports will have to be much worse-then-expected (at least 30k down on the ADP and 2 points on the ISM).

Summarizing the slide under 1.30 decreases the odds for stronger EUR/USD rebound. There is a higher probability that we will continue the dive (especially after solid U.S data).

Polish interest rate decision.

Most analysts surveyed by Bloomberg (38 out of 39) expect that Polish MPC members will cut interest rates by 25 bps to record low 2.5%. The benchmark decrease is already priced in. Investors are also expecting that the statement will be neutral and it is suppose signal that “cost of money” remain at 2.5% till the end of 2013. The other possible scenario (rather less probable then the base one) is that presented by HSBC economist Agata Urbanska – Giner. She claims, as Bloomberg reports, that “2014 inflation forecast will 'weigh' on likelihood of more easing beyond July” and rates will “likely” be lowered further to 2.25% at MPC's meeting in Sept “if global data show on-going downside risks to the strength of economic recovery”

The zloty still remains under pressure. If today's rate decision is in line with expectations and the statement shows a neutral bias, then we should not see any major moves on the PLN. On the other hand if we get some negative signals from the global economy (more issues in the EM or macro data which favors the dollar) then we can expect more weakness on the zloty and a move above 4.35 on the EUR/PLN

Expected levels of PLN according to the EUR/USD rate

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

Overall technical situation on the analyzed pairs.

The PLN pairs are still in the bullish trend. The EUR/USD remains under pressure with the target around 1.28.

Technicznie EUR/USD:the pair slided under 1.30 level which confirms the bearish bias. The target is still around 1.28. Alternatively the buy signal is suppose to be generated around 1.32.

Technicznie EUR/PLN:Bullish. The target remains at 4.40. Only the slide under 4.28 should bring more bears and push the pair toward 4.22.

Technicznie USD/PLN:we have already reached two targets – 3.30 and 3.35. The next one is around 3.50. Alternatively the slide under 3.22-23 will generate the sell signal.

Technicznie CHF/PLN:the trend is still bullish on the CHF/PLN with the target around 3.60. The slide under 3.48 should generate the sell signal.

Technicznie GBP/PLN:the 5.10 target has been reached. The next one is around 5.20-5.22. The slide under 4.97 should favor bears.