Daily analysis 03.09.2013

In fears of US solid data the EUR/USD has been slightly sliding since the morning. Syria and macro data are still in focus. Tapering already priced in?. The Polish zloty is stable around 4.25-4.26 level.

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

• 16.00 CET: Manufacturing ISM from the States (survey 54.0 points)

Winding down QE has already been priced in?

Both the US and Asian sessions didn't bring any major changes. The American investors enjoyed their Labor Day (so they are excused), but Tokio traders were also fairly muted. In result we started the day fairly unchanged. Moreover, there is still no progress regarding Syria (either one way or another). However, France seems to be quite convinced that the military action is necessary (claiming even that they have evidence that Damascus regime used chemical weapons). But the French needs US to lead the operation and the political situation on the other side of the Atlantic is not trivial. There are even tension inside the parties which are divided into three camps (supporters, opponents who don't want any intervention and opponents who claim that Obama should change the regime in Syria instead of launch only air strikes). Assuming, however that the intervention will not start this week the market should strictly focus on macro data (especially from the US) trying to get a crucial answer – whether the tapering starts in September.

The market consensus estimate that QE winding-down operations will start at the coming Fed's meeting. Despite that investors are fully focused on the current data there is also another simple (or rather hard) issue: how much tapering has already been priced in? To get the answer I would like to cite some interesting opinions from Friday's Financial Times article (“Fed ‘taper’ is dicey game of dominoes”). The analysis is mainly focused on the debt market, but it should be also valid for currencies (especially the most hurt after May 22th Bernanke speech). Pierre-Yves Bereau, global head of emerging markets debt at JPMorgan Asset Management told the FT that “I'd say 90 per cent of 'tapering starting in September' is priced in – now we just need to see it starting”. On the other hand David Zahn, head of European fixed income at Franklin Templeton claims that “The Bank of Japan is probably making up for what the Fed has taken out”. Finally Russ Koesterich, global chief investment strategist at BlackRock points out that “If yields [Treasuries] keep going up too fast and threaten to unravel the economy, as we have seen a bit in housing markets, that's when the Fed may want to act”. We can then assume that the market (also currency) has had enough time to evaluate the impact of tapering (around $15 billions) and should not be as affected as some believe.

Coming back to the current issues we are having the ISM (similar to the PMIs) reading from the States today. Besides the headline number investors will also focus on the employment sub-index (regarding the tapering, of course). The EUR/USD is rather on the bearish side today and investors seem to favor the dollar (similarly to Monday's developments).

The zloty should remain under EUR/USD influence

The Polish currency should be fully depended on the broad market today. The EUR/USD condition will be a key to the zloty's valuations. If the most treaded currency continue the slide than we should expect the PLN to remain weaker. The EUR/PLN will also focus on the ISM reading. Better-than-expected data should put the pressure both on the zloty and on Polish bonds.

We should not forget about Wednesday's MPC meeting. Despite that the interest rates will not be changed, the market should focus on the Belka conference (at least some question regarding the economic situation, quasi forward guidacne, overall EM situation or expected tapering can be asked).

Summarizing the zloty should be fairly stable today with higher probability to weaken slightly than continue the yesterday's strengthening.

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

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

The sell signal was generated on the EUR/USD. Bullish tendency on all Polish pairs.

Technical analysis EUR/USD: the slide under 1.3200 should generates the sell signal with the target at 1.30 (the 200 MA will not be a key support now). The comeback to the bullish trend possible after rising over 1.3300.

Technical analysis EUR/PLN: the move over 4.26 generated a buy signal with a first target at 4.30 (almost reached). The next target is 4.35. A slide under 4.24 suggests a return to range trade 4.22-4.26. If the EUR/PLN slides under 4.22 it generates a sell signal.

Technical analysis USD/PLN: the rise above 3.22 generates a buy signal with a target at 3.30. The comeback under 3.18 negates the bullish singal..

Technical analysis CHF/PLN: the buy signal was generated on CHF/PLN with a first target at 3.52. On the other hand the slide under 3.43 should favor a range-trade between 3.40-3.45.

Technical analysis GBP/PLN: we are getting closer to generate the buy signal (after breaking 5.00) with the target around 5.10. Staying under 5.00 still prefers the short positions.