Daily analysis 06.06.2013

EUR/USD is over 1.31. Wednesday's data was rather bearish for the dollar. Today we have the ECB rate decision. No change is expected. Belka didn't spur the sell-off on the zloty? EUR/PLN again around 4.28.

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

• 13.45 CET: interest rate decision in the Eurozone (survey: unchanged; at 0.5%)
• 14.30 CET: Mario Draghi press conference
• 14.30 CET: jobless claims form the States (survey 345k)

EUR/USD higher; ADP lower, ISM close to the estimates. ECB in focus

Despite that we didn't see huge moves after the yesterday's eco reports they were slightly bearish for the dollar. The ADP was 30 k below the estimates (135k vs 165k) and can be seen as a negative inditation for the Friday's NFP. Regarding the ISM it was in line with expectations, but its employment subindex fell close to the 50 mark. It is wort to cite Citi strategists led by Tom Fitzpatrick. They wrote to their clients that “Employment component (of ISM) closely relates to NFP, either leading or coincidental with moves in private NFP”. They also added that “When ADP and private NFP diverge, private NFP has “usually” been the one to adjust. The odds are increasing that Friday's payrolls will be worse then currently expected. However, this anticipation has slowly been pricing in what is clearly seen in the EUR/USD rate.

57 out of 59 surveyed by Bloomberg expect that the ECB leaves the benchmark rate unchanged. Analysts also don't predicts any changes in the Central Bank deposit rate, or fast creation of more liquid ABS market. There is also a slim chance that Mario Draghi will signal any new lending program to SME in the peripheries. It should therefore be a non-event conference.

Summarizing the EUR/USD is gaining the ground slowly and tries to position itself before the NFP data on Friday. Either ECB rate decision, or weekly jobless claims should not change the overall sentiment.

Did Belka really weakened the zloty?. Another cut in July is possible

Polish MPC rate decision didn't surprise investors yesterday. Some confusion caused it's press release where it is stated that “The Council assesses that monetary policy easing (in Polish version word cycle is used) conducted since November 2012 supports economic recovery and limits the risk of inflation running below the NBP target in the medium term”. It suggests that we are sill in the cycle despite Marek Belka said, during March conference (after cutting the benchmark by 50 bps), that “the MPC put full stop to easing cycle” and in May (after 25 bps cut) he said that the “cut shouldn't be treated as new cycle”.

The largest market move we were observing, at least at first glance, after Belka told reporters that it is “over-interpretation” to say Poland has ended the easing. Taking into the account his further comments it is expected that the MPC will lower the rates again in July and then (after new Central Bank Inflation projection) the Committee will give more clear guidance (probably a neutral policy) on the interest rates.

Getting back to the pure market reaction there has been comments that Belka's conference depreciated the zloty. Digging into the details we can see, however, that the selling pressure on EM currencies did begin earlier (especially nicely seen in the Latin America currencies – Chilean and Mexican Peso). The zloty was waiting at an unchanged level till the conference (please look at the enclosed chart). When investors received the main message it just adjusted to its EM basket counterparts. The further zloty moves were matching other developing currencies.

We are again getting closer to the 4.30 mark. If it breaks the recent highs the path to 4.40 will be open. The scenario will probably materialize when we see another wave of EM bond sell-off or in case of more signals on QE reduction.

Expected levels of PLN according to the EUR/USD rate

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

Overall technical situation on the analyzed pairs

EUR/USD is still in bullish trend in the short term and in the 1.28-1.32 range in the medium term. CHF/PLN and USD/PLN managed to hold its bullish tendency.

Technical analysis EUR/USD: breaking above 1.31 still favors bulls in the short therm. For a larger bullish move we have breakout 1.32 resistance and then another strong 1.33 resistance. In the medium term we are still in the range trade (1.28-1.32).

Technical analysis EUR/PLN: EUR/PLN is getting closer to 4.30. Breaking 4.30 should open the way toward 4.40. Alternatively falling under 4.22 is bearish for the pair.

Technical analysis USD/PLN: the pair was able to hold its bullish trend. After breaking 3.30-3.32 strong resistance it should move toward even to 3.5000. Falling to jump over 3.32 and the fall under 3.22 should end the bullish trend.

Technical analysis CHF/PLN: the pair, similarly to the USD/PLN, was able to hold the bullish (with new highs) trend. Currently the target is 3.53-3.55.

Technical analysis GBP/PLN: moving over 5.0000 is a confirmation of the bullish trend. The target is still 5.10.