Daily analysis 04.12.2012

Weak ISM reading and the fiscal cliff from the States causes the slide on equities, but EUR/USD stayed firm. Lower yield on peripheries debt helps the common currency. PLN separated from the global risk easing, and has been weakening in anticipation of MPC meeting.

Macro data:

• No key macro reports

EUR/USD changes its perception regarding fiscal cliff and Eco data form the US?

Yesterday we had another day with worse then expected data from the States but without the negative effect on the common currency. Usually weak data from the U.S strengthens the dollar regarding the risk aversion sentiment and capital flow to the safe haven (USD). Recently that relationship has been disturbed. Monday was a good example how it really works. At the beginning EUR/USD didn't react to the disappointing info concerning the fiscal cliff, and then the worse in 3 years ISM reading didn't cause the EUR selling. How much longer the situation last it is hard to predict, but it is worth to research relation to feel the market mood.

Lower yields on Spanish and Italian debt boost EUR/USD.

The positive impact on the EUR/USD comes from the peripheries debt. Yesterday investors traded Spanish 10 years bonds at yield around 5.25% what was the lowest level since March. Even better looked the benchmark yield on Italian debt. It was quoting around 4.45% even with the worse then expected PMI data (survey: 46 points; actual: 45.1 points). It shows that according to the global investors the risk of Eurozone breakup has decreased significantly. Also the ECB approach (OMT program, common banking supervisory, relative fast reaction to the Spanish bank problems) strengthens the perception of debt investors that “the worse is over”.

Slides instead of gains on PLN.

The direct reason is much weaker then expected GDP reading and faster then expected monetary easing. The rate decrease of 25 bps on the coming MPC meeting expects 31 of 33 analysts surveyed by Bloomberg. Two consider the deeper 0.5% cut. However regarding the MPC members usual approach and their recent statements such deep cut is rather not possible. The base scenario, in my opinion, is 25 bps cut and quite dovish conference. After the Wednesday's decision PLN suppose to come back to the usual behavior (higher EUR/USD and global equities mean stronger PLN, and vice versa). Although it is possible that till the decision we will see 0.01-0.02 PLN weaker PLN, what in summary will give 0.06 PLN weaker zloty after the GDP report.

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

Technicznie EUR/USD: the technical situation has not changed. The up trend is still in favor with the target around 1.3150-80. Only the slide under 1.2900 (23.6% Fibonacci retracement level, and 50 DMA) changes the trend.

Technicznie EUR/PLN: high green candle and closing close to the highest level are strong bullish signals. After breaking resistance levels around 4.1200-4.1250 the buy signal was generated with the first target of 4.17-4.18 (38.2% Fibonacci retracement level and 200 DMA). To negate the recent move the EUR/PLN will have to end the day below 4.11 (slim chance now).

Technicznie USD/PLN: differently to EUR/PLN there is still no buy signal on the USD/PLN. It will be generated only when the pair breaks out 3.1900-3.1950 (Fibonacci retracement level and 50 DMA).

Technicznie CHF/PLN: similarly to EUR/PLN the buy signal was generated on the pair (however not so strong as in the EUR/PLN example). The target is around 3.4600 ( 38.2% Fibonacci retracement level and 200 DMA). To negate the move the pair will have to slide under 3.4000.