Daily analysis 05.02.2013

Political issues in Italy and Spain were the direct reason of yesterday's broad based weakness. The sell off from Europe moved to the States where additionally macro data were weak. Besides closely watching peripheries investors will be preparing to Thursday's Mario Draghi conference. The volatility on Polish pairs increased significantly and can be elevated till the end of the week.

Macro data (CET- Central European Time):

• 9.13 CET: services PMI from Spain (survey 44.1)
• 9.43 CET: services PMI from Italy (survey 45.8)
• 9.53 CET: final services PMI reading from German (survey 55.3)
• 9.58 CET: final services PMI from Euro Zone (survey 48.3)
• 11.00 CET: retail sales from Euro Zone (survey minus 0.5% m/m and minus 1.4% y/y)
• 16.00 CET: services ISM from U.S (survey 55)

Pretext for correction. No major impact from the data expected today.

The overbought environment on many instruments and widely heard voices for correction moved lower most of the markets yesterday. European indicies slide by 2-3%, 10-year yields on Spanish debt rose by more then 20 bps to 5.45% and the Italian benchmark paid 14 bps more (4.47%) then on the Friday close. Markets on the other side of Atlantic were not able to resist the sell off (S&P 500 was down more then 1% and finished the day under 1500 mark). Some pressure was also put on equities after weak macro data (durable goods orders were 0.3 percentage point lower then estimates). The direct reason of the risk aversion trade were political problems in the peripheries. In Spain the Prime Mariano Rajoy had to answer for questions regarding illegal party financing, and in Italy Silvio Belusconi is gaining ground in the polls before the parliamentary election. The longer this two cases are on news headlines, the more trouble is expected on EUR/USD and on global equity markets. If the correction lasts for weeks, we can see again some pressure on the stability of the Euro Zone (e.g. higher yeilds on debt, Spanish bailout, end of austerity in Italy and etc). Today's macro European data will rather not have a major impact on the currencies. The market which can change the mood is the NYSE. If the ISM report is better then expected we can see even an attempt to come back above 1500 level on S&P 500 what in results should increase the risk appetite.

ECB on Thursday.

Analysts surveyed by Bloomberg expect leaving ECB rates unchanged. Some economist however, predict that the Mario Draghi conference will be more dovish then last time. The mentioned opinion is shared by Thomas Harjes from Barclays and James Ashley from RBC capital. Additionally an economist from Citigroup, Jurgen Michels, in a memo to clients sent on February 1st claims that the Thursday's conference can ”open door to rate cuts”. He also expects ECB can cut rate as early as in 2nd quarter and introduce a negative yield “at some stage”. If the conference turns out to be as dovish as some expect the EUR/USD can continue its correction. On the other side if Mario Draghi fails to indicate any cuts and will not be concerned on euro value then we can see some rebound on the common currency.

Interesting on PLN.

On Monday morning the PLN was continuing the appreciation mood started at the end of last week. The later deterioration of sentiment caused a rapid come back to the levels around 4.1800 on EUR/PLN. The strong rally during the early hours can be explained be the need of closing long EUR/PLN positions opened around 4.2000 last week. The coincidence cased that move was immediately reversed due to worsening global mood. Now the Polish currency should be focused on Wednesday's MPC conference. Any indications from governor Belka regarding pausing cuts can strengthen the zloty. Dovish comments will be weighting on PLN for another weeks.

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

Technical analysis EUR/USD: the strong slide on EUR/USD caused that we are currently testing the support around 1.3500. If it fails then another stop can be found around 1.3350-1.3300 (levels of January's consolidation and 23.6% Fibonacci retracement level). The comeback above 1.3600 will be bullish signal.

Technical analysis EUR/PLN: long lower shadow on the candlestick and comeback to 4.1800 favors bulls. The target is again the rebound over 4.21 and move toward 4.2500. On the other side the second shot of 4.1500 level should be successful and favors then shorst.

Technical analysis USD/PLN: strong rebound from support level of 3.0500 moves away the test of 3.0000 level. The first resistance level is 50 DMA around 3.1150. The next resistance is 3.1400. The breakout of 3.14000 should change the trend and spur move toward 3.25-3.27. We should remember that the trend is still bearish and until 3.1400 is broken any level should be used for opening short positions.

Technical analysis CHF/PLN: yesterdays volatility didn't change much on CHF/PLN. Bears should be waiting until the CHF/PLN moves under 3.3300. Such a move will initiate the sell signal with the target around recent lows (3.27). The longs are set to open buy positions above 3.41 and wait until 3.4800 is reached (50% Fibonacci retracement level).