Daily analysis 05.04.2013

Dovish Draghi firstly moved EUR/USD lower, but then the market rebounded strongly and ended the day above 1.2900 level. Today in focus the NFP report. The EUR/PLN is sill relatively stable despite high volatility on the global market. Another euro-accession debate and interesting remarks from governor Marek Belka.

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

• 11.00 CET: Retail sales from the Euro Zone (survey: minus 0.4% m/m and minus 1.2% y/y)
• 12.00 CET: Factory orders in Germany (survey +1.1% seasonally adjusted)
• ◦ 14.30 CET: NFP from the States (survey 190k) and the unemployment rate (survey: 7.7%)

Draghi conference. EUR/USD rebound. NFP

In line with expectations Draghi's conference was the main event during the European session.. Summarizing it in two words – slightly dovish. The ECB chief noted that the economic situation in the Euro Zone is weak and the incoming recovery for the second half of the year is “subject to downside risk”. Regarding the inflation and discussion on the interest rate cut, the governor told reports that the inflation expectations is firmly anchored “below but close to 2% over the medium term” and “the discussion was extensive. I would say that, all in all, the consensus was not too look at rates for the time being” He was also referring to the Cyprus case claiming that it will not be a template and the ECB was against a tax on deposits under 100k euro. Draghi didn't want to give any details on his conversation with Italy's President Napolitano. He also told journalists that the exchange rate is “is not our policy target but it is important for growth and price stability”. In the first minutes the market reaction was quite straightforward – new lows on the EUR/USD (around 1.2750). A several minutes later, however, the shorts were taken form the market and we came back to levels before the conference (1.2820). Then it was easy to predict situation – short squeeze and jump toward 1.2900.

A slight panic of the dollar bulls was also fueled by speculations on weak U.S payrolls today (concerning disappointing ADP report). Taking into account the overall situation, if we get NFP report close to or above estimates (190k) we should observe EUR/USD slide. If the data falls short of expectations (under 150k) we can expect further eurodollar rise.

The zloty is slightly to the euro. Interesting remarks by governor Belka on ERM2

On Thursday we could observed a rebound on the zloty to 4.1800 per euro The first reason was technical situation (unsuccessful move above 4.20), and second (in lesser extend) thanks to aggressive monetary policy announcement in Japan. The base case scenario is still a range trend (4.15-4.20) with higher probability to move above 4.2000 then slide under the lower band.

On Thursday we had another debate on the Euro Zone accession. The last one organized by the Finance Minister Jacek Rostowski was pretty interesting (full video on the official youtube profile: NBP na www.youtube.com http://www.youtube.com/watch?v=EDQCOWHPhIE ). This time there is no recording but according to the Bloomberg report the Polish MPC chief Marek Belka is seriously concerned with high probability of the zloty speculation during the 2-year ERM2 currency corridor. He said. “We have a big currency market and we should say: We're not entering ERM2. If you want us in, invite us without that requirement. Is that chutzpah? You bet it is”. The idea seems to be pretty good but I don't want to comment on the diplomatic stills...

It is really difficult to have any idea what is the Polish approach toward the euro adoption. The Prime Minister changed his mind on the referendum (at the end of 2012 strongly against, now in favor), experts want to exceed the euro convergence criteria (on the fiscal side and make the job market more flexible – no details for now). There is also no precise stance from the NBP (with controversial remarks form Marek Belka) which does not paint a positive picture for the subject. At some point we can get to a moment when the PLN will be volatile not due to ERM2 corridor, but thanks to lack of any cohesive plan toward the euro.

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

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

Technical analysis EUR/USD: the confirmation of yesterday's rebound will be the move above 1.3000. Then a buy signal will be generated with first target around 1.3150 and then in extension toward 1.3300. For now, however, in the medium term the trend is still bearish.

Technical analysis EUR/PLN: there is still no change on the EUR/PLN. The rebound from the range trade was not successful. However, if we move above 4.1900 there is a chance to attack 4.2300 and in extension even 4.3000 level. The alternative scenario is opening short positions under 4.1500 (low probability). The base case scenario is still the range trade (4.15-4.20).

Technical analysis USD/PLN: we had now highs yesterday (3.2850) but then the USD/PLN slided sharply toward 3.2300. If we fall under 3.22-3.21 then it can be a signal to the end of recent medium term bull trend and we can slide toward 3.1400 (level when the rise was initiated).

Technical analysis CHF/PLN: there is still a high probability that we continue the rising trend. The target for the franc is 3.48 (50% Fibonacci retracement level). The comeback to the range trade is possible after falling under 3.39-3.40.

Technical analysis GBP/PLN: a slight weakness on the pound does not negate the short term bullish trend. The base case scenario (short-term) is still move toward 5.0000 and an attempt to break it and change the medium term outlook. On the other hand a slide under 4.89 should be a trigger to close longs and under 4.85 to open new shorts (a come back to both short and medium term bearish trend).