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Daily analysis 04.07.2013

4 Jul 2013 12:32|Marcin Lipka

Despite some incoherent data form the U.S, political crisis in Portugal and turbulence in Egypt the EUR/USD came back around 1.30. Today we have the ECB rate decision and Mario Draghi conference. In line with expectations the Polish MPC cut rates by 25 bps. We also got a clear suggestion that the July cut ended the cycle.

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

  • No session in the U.S
  • 13.00 CET: BoE interest rate decision (survey; no change, 0.5%)
  • 13.45 CET: ECB interest rate decision (survey; no change, 0.5%)
  • 14.30 CET: Mario Draghi conference after the ECB meeting

Global situation favors the dollar, but the market has found a reason to come back around 1.3000 on the EUR/USD.

From Wednesday morning the sentiment was pretty grim. In Portugal finance and foreign affairs ministers resigned, which destabilized the government and 10-year sovereign yields jumped 140 bps (from 6.7% to 8.1%) what gives 10% slide on the the price. Furthermore, some optimistic expectations regarding the services PMI readings were not fulfilled (German was revised form 51.3 to 50.4 and the Eurozone from 48.6 to 48.3). Another element which increased the uncertainty was the turbulence in Egypt. In result the EUR/USD dived to 1.2920 around 10.00 CET. Later investors were waiting for the U.S macro data. The ADP report was quite solid (188k vs 160k estimated) and favored the dollar, but the ISM index fell short of expectations (52.2 vs 54). The ISM data, however, should not extend the QE expectations, because the employment component was really solid (54.7). As The Financial Times reports (article: “Portugal and Egypt fears rattle markets”), some analysts, claim that “a widening of the trade gap in May (54 billion USD vs 50 billion), which sharply reduced the US GDP growth trajectory”. It clearly reminds me a recent statement form William Dudley “QE may be prolonged if economy misses Fed forecasts” and was a bearish signal for the dollar.

At the beginning of the European session the situation is much calmer. Portugal yields are falling (the Prime Minister will not step down) and turbulence in Egypt has eased (the army has sized the power what is positively seen by the society)

Today the ECB decision and Mario Draghi conference will be in focus. The market does not expect any rate change and will not probably any non-standard measures will not be presented. It is possible that ECB chief will sound pretty optimistic regarding the 2nd half of the year (citing some leading indications) and confirming the accommodative for (as log as needed) . It will be also interesting how Draghi is going to respond to questions concerning the Portugal case. Summarizing the EUR/USD reaction was fairly muted regarding all the issues. Despite that the downside risk still remains, investors should be careful for a selective approach to the news (rebound risks)

Polish MPC in line with expectations.

Polish MPC members, in line with estimates, cut the benchmark rate by 25 bps to 2.5%. The statement also met market expectations, and signaled clearly that the easing cycle ended in July “ The decision to lower NBP interest rates made at the current meeting ends the loosening cycle of monetary policy. Professor Belka during the conference added that “Polish economy has put the worst behind it” and “You could say that ending the easing cycle is the Council's way of expressing optimism”. It is also worth to mention some remarks from MPC members Andrzej Bratkowski (viewed as most dovish in the Committee) who said that “We've reached the point where I think it makes sense to take an optimistic view of future developments. Continuing rate cuts could turn out to be acting pro-cyclically” It means that professor Bratkowski also agrees that the current benchmark is close to the adequate level (despite that the NBP projections are showing that the CPI will be below 2% target even in 2015; full inflation report will be released in a few days)

Summarizing the market was ready for the cut and the end of the cycle, but didn't expect that the statement will be so strong. It pushed the EUR/PLN around 0.03 PLN lower, but it should not be a catalyst for the future slides. Any major move, either up or down, will be probably again generated abroad.

Expected levels of PLN according to the EUR/USD rate

Kurs EUR/USD 1.3050-1.3150 1.2950-1.3050 1.3150-1.3250/td>
Kurs EUR/PLN 4.3000-4.3400 4.3100-4.3500 4.2900-4.3300
Kurs USD/PLN 3.2900-3.3300 3.3300-3.3700 3.2500-3.2900
Kurs CHF/PLN 3.5000-3.5400 3.5100-3.5500 3.4900-3.5300

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

Kurs GBP/USD 1.5250-1.5350 1.5150-1.5250 1.5350-1.5450
Kurs GBP/PLN 5.0500-5.0900 5.0300-5.0700 5.0700-5.1100

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.


4 Jul 2013 12:32|Marcin Lipka

This commentary is not a recommendation within the meaning of Regulation of the Minister of Finance of 19 October 2005. It has been prepared for information purposes only and should not serve as a basis for making any investment decisions. Neither the author nor the publisher can be held liable for investment decisions made on the basis of information contained in this commentary. Copying or duplicating this report without acknowledgement of the source is prohibited.

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