Daily analysis 04.10.2012

EUR/USD stronger in the morning. The market is waiting for the ECB decision (13.45 CET), the ECB conference at 14.30 CET and FED minutes at 20.00 CET

The economic data which hit the market yesterday were mainly positive. Both the ADP employment report and the ISM service index were better then the forecast, but it didn't spur much action. The market finished the day virtually unchanged and seemed to „be waiting” for the Thursday data from central banks. Today we will probably witness much higher volatility (especially during the ECB conference and the FOMC minutes). I am not expecting any changes concerning the benchmark rate . Also I don't see much chance that the ECB will implement some more non-standard measures (i.e. negative deposit rate). It will be worth though to listen closely the conference with Mario Draghi. He will probably unveil some details about the OMT programme.

We should also not to forget about the FOMC minutes. It was the 12-13 September meeting when Ben Bernanke launched another QE. Investors will seek in the protocol if the Chairman has some more tools to use. The market speculates that there can be some discussions about special bank loans directed exclusively for companies and individuals or ideas concerning lowering the deposit rate to 0%. Traders will also try to evaluate if the protocol is as dovish as was the conference in mid September.

The EUR/USD market is pretty keen to rise from the early morning. The risk on mood should be able to inflate the Eurodollar to the levels above 1.3000.

Technically the EUR/USD is bullish. We did close the day above 23.6% of the Fibonacci retracement level. We are still about the uptrend line and two main moving averages (50 and 200 days). The base scenario is the move around 1.3030 till the end of the week. If the EUR/USD bounce back from the current levels we can slide to the support level of 1.2780-12800.

The economic data which hit the market yesterday were mainly positive. Both the ADP employment report and the ISM service index were better then the forecast, but it didn't spur much action. The market finished the day virtually unchanged and seemed to „be waiting” for the Thursday data from central banks. Today we will probably witness much higher volatility (especially during the ecb conference and the FOMC minutes). I am not expecting any changes concerning the benchmark rate . Also I don't see much chance that the ecb will implement some more non-standard measures (i.e. negative deposit rate). It will be worth though to listen closely the conference with Mario Draghi. He will probably unveil some details about the OMT programme.

We should also not to forget about the FOMC minutes. It was the 12-13 September meeting when Ben Bernanke launched another QE. Investors will seek in the protocol if the Chairman has some more tools to use. The market speculates that there can be some discussions about special bank loans directed exclusively for companies and individuals or ideas concerning lowering the deposit rate to 0%. Traders will also try to evaluate if the protocol is as dovish as was the conference in mid September.

The EUR/USD market is pretty keen to rise from the early morning. The risk on mood should be able to inflate the Eurodollar to the levels above 1.3000.

We did see quite a movement on the polish pairs. Thanks to keeping the benchmark rate unchanged by the National Bank of Poland the PLN appreciated by 0.03 PLN to EUR and 0.02 PLN to USD. Today in the morning due to low risk aversion we did add another 0.01 PLN to the value of zloty. I don't expect the further appreciation of the polish pairs regarding the council decision. I will rather see that the PLN return to the correlation with Polish bonds, EUR/USD and the US stock market. Additionally if we go through the protocol of the monetary policy council (RPP) we can easily see that the decision of lowering the benchmark rate is imminent. The RPP just waits for the new inflation projection which probably will show that the inflation comes back to the target in the first half of 2013.

Technically the EUR/USD is bullish. We did close the day above 23.6% of the Fibonacci retracement level. We are still about the uptrend line and two main moving averages (50 and 200 days). The base scenario is the move around 1.3030 till the end of the week. If the EUR/USD bounce back from the current levels we can slide to the support level of 1.2780-12800.

There is an interesting situation on the EUR/PLN. We did bounce back from the 23.6% Fibonacci retracementt and also broke downside the 50 days moving average. The target for the EUR/PLN is the level of 4.0500. The alternate scenario is coming back to the strong resistance level of 4.1250 (downtrend line and the Fibonacci level).

USD/PLN did make another step in the continuation of the downtrend. It is moving further form the resistance level of 3.1800-3.2200. The probability is getting higher that we will test the lows of the year around 3.0800-3.1000. The alternative scenario is coming back to the 3.2000 level.