Daily analysis 06.05.2013

The ECB and U.S jobs data were moving the market up and down on Thursday and on Friday. New record high levels on global equities. Weak PMI services reading from China. The pound is higher on better-then-expected economic data. Polish rate cut as early as on Wednesday?

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

• 9.48 CET: Services PMI from France (survey 44.1; final reading)
• 9.53 CET: Services PMI form Germany (survey 49.2; final reading)
• 9.58 CET: Services PMI form Euro Zone (survey 46.6; final reading)

High intraday volatility on the EUR/USD

Getting back to the Thursday's EBC decision (on May 3rd there was no analysis due to Polish holiday) the Central Bank lowered the benchmark rate by 25 bps to 0.5%. In line with expectations of major institutional players (for example Goldman Sachs) the cut didn't spur a sell-off on the EUR/USD. The situation changed when a reporter asked Mario Draghi on negative deposit rate. In response ECB chief said that the Bank is “technically ready” (which was nothing new), but then he further elaborated on the issues making it more probable (at least by the market perception). After his comments the euro dropped by more then 100 pips (from 1.3170 to 1.3050). For the next hours the European currency was gradually gaining some ground with a kind of external help from Ewald Nowotny and his comments for CNBC that Draghi's statement was “over-interpreted”. Finally before the Friday's data we returned to around 1.3150. The jobs data really surprised most investors. The April reading was 20k higher then estimates (165k vs 145k), March data was revised upwards by 50k (from 88k to 138) and finally in February the U.S economy added 332k jobs vs previous estimates at around 270k. In summary Labor Department statisticians “found” more then 100k additional jobs which not surprisingly pushed EUR/USD lower but only for less then an hour. Then the common currency rebounded again and we ended the weak at 1.3120. On Friday we had also all-time record-high closing on U.S equities on Friday (with S&P 500 above 1600 points) and early Monday weak data form the Chinese PMI services (51.1 points vs previous month reading at 53.5).

Summarizing, despite a relative positive weekly closing for the EUR/USD (taking into the account eco data) the pair should be under pressure in the following weeks. Both the perspective of the negative rates and returning discussion on decreasing the level of QE3 by FED (thanks to strong job market) should strengthen the dollar on global markets.

The zloty is waiting for the Polish MPC rate decision

EUR/PLN is still stable taking into account large moves on the global currency market and trading sideways in the range of 4.12-4.20. In the following days investors will try to evaluate the probability of a rate cut on Wednesday. Analysts consensus still shows that the benchmark remains unchanged in May (at 3.25% according to Bloomberg data) but there is an increasing pressure (from the weak eco data or ECB last Thursday move) to cut the refi faster (by 25 bps in May and another 25 bsp in June). On the other hand if it holds on Wednesday then I will see a cut by 50 bps in June.

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

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

Overall technical situation on the analyzed pairs:

The technical situation on EUR/USD is slightly worse then in the mid of last week, but the support level around 1.3000-.1.2950 still holds and there is still higher probability for more gains then losses. The Polish pairs are relatively stable – CHF/PLN and EUR/PLN in the range trade, GBP/PLN with more odds to go higher and USD/PLN to go lower.

Technical analysis EUR/USD: high daily volatility has not changed the overall technical situation. There is still a preferred scenario to go north breaking 1.32 with the move toward 1.33. The strong support is around 1.3000 (200-DMA, 50-DMA) when broken the downside pressure should push the pair toward 1.2700.

Technical analysis EUR/PLN: the move over 4.1600 last week resulted that the technical analysis supports a view with range trade between 4.15-4.20. The slide under 4.1200 will favors bears and rise over 4.20 bulls (the least probable scenario).

Technical analysis USD/PLN: the pair hasn't moved over 3.2000 so the preferable scenario is bearish trend with the target around 3.06 in the medium term. On the other hand breaking 3.20 to the upside will favor bulls with the target at 3.2700.

Technical analysis CHF/PLN: the move over 3.4000 generates a buy signal with a target at 3.4300 and 3.4700 in extension. The alternative scenario is comeback to the range trend – 3.33-3.40.

Technical analysis GBP/PLN: thursday's move from 4.86 to 4.93 did change the perception in the short term (form bearish to bullish). The target for the pair is 5.0000 and the probe to change the medium term sliding trend. On the other hand the slide under 4.84 will support the bears again.