Daily analysis 06.09.2013

Dovish Draghi and the highest ever non-manufacturing ISM put pressure on the EUR/USD and pushed it toward 1.31 level. Finally, the most anticipated data – NFP. The zloty weakened significantly reaching 4.30 per the euro. Today the PLN should return to the global sentiment trade.

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

• 12.00 CET: Industrial production from Germany (survey: minus 0.5%)
• 14.30 CET: US jobs market. Firstly investors will be focused on NFP (expected 180k). The revision also be quite crucial. Secondly the unemployment rate (estimated at 7.4%). Folks will also look at the Labor Force Participation and the Earnings. Solid data should support the greenback

ECB, ISM, and the Payrolls

Yesterday the EUR/USD, before the Mario Draghi conference, was trading around 1.3200 level. However, when the ECB chief started speaking the most traded currency pair began its slide. Firstly he repeated July's “forward guidance” that the interest rates will remain at current or lower level for an extended period of time. Secondly when Draghi was describing the “cut” discussion he was citing some economic weaknesses, even though there are much less reasons to lower the rates (better current and expected economic conditions) than in previous months. The ECB slightly upgraded the GDP estimates (0.2 percentage point on GDP and 0.1 percentage point on inflation for 2013) but also lower the growth by 0.1 percentage for 2014 and left the inflation unchanged. The ECB chief sounded quite optimistic on SSM (Single Supervisory Mechanism). He told reporters that “Our discussions with the European Parliament progress considerably and we should have some positive news [on SSM] in the coming days”. It is possible that some time it can be used as an element to boos the euro if, of course, the market conditions allows for such an action.

On Thursday we had also great non-manufacturing data. The managers' index rose to all-time-high (since its inception in 2008) reaching 58.6 points. Analyzing the report on Institute for Supply Management web site (http://www.ism.ws/ISMReport/NonMfgROB.cfm?navItemNumber=12943 ) it is hard to point any weaknesses. Both the headline number and the sub-indexes (including the most important regarding the tapering – employment) were really solid. Also both the manufacturing and services reading published this week are strong argument to start the QE reduction in September.

Despite that all published data on Thursday were bullish the EUR/USD didn't slump that significantly. The EUR/USD weakness was visible, but some investors were still reluctant to make the final decision before the key job's data. However, taking into the account the recent macro reports, the NFP would have to be significantly lower (at least 30k for this month and another 30 in the revisions) to give substantial doubts on the September tapering. On the other hand if the market reaction is fairly muted on 14.30 CET data, then we should expect that most of tapering is already priced in.

Summarizing, both the US data and the ECB conference put a strong pressure on the EUR/USD. Fundamentally the euro-dollar should continue the slide. If not, it can mean that most of the QE issues are already in prices and the market will have to find anther theme (amount of the QE reduction, the pace, the finish date and etc, but not only the event).

Weaker zloty. Pension story

The zloty finally reacted to the bonds and stocks turmoil. The EUR/PLN jumped to 4.30 level in the late afternoon. We can agree with some rumors that “foreigners” were selling Polish assets after the government presented OFE overhaul. The zloty is not only under pressure from the real money outflow but also from sentiment shift. Polish government in recent days become quite populist suggesting that free-economy is the worse system ever and only the government can provide safety and reliability. It is quite surprising approach especially taking into the account that Finance Ministry had quite good relations with the markets and people like chief economist Ludwik Kotecki and deputy finance minister Wojciech Kowalczyk did a great job in last few years to establish transparent cooperation with investors in a quite turbulent times.

Today we should mainly focus on the data. The incoming tapering will not be positive for the zloty and if the US data is solid we should expect a further pressure on the PLN. It is also worth to note that Polish 10-year government bond yields jumped to 5.00%. We can now quickly deny Finance Ministry claims that the yields rose due to global issues. The spread between 10-year Polish and German benchmark was 250 bps at the beginning of September. Currently it jumped to around 300 bps.

Summarizing the zloty should be under pressure today, however, less form the pension story and more form the US data (if it confirms the tapering). We will probably end the week around 4.30 per the euro.

Expected levels of PLN according to the EUR/USD rate

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

The sell signal was generated on the EUR/USD. Bullish tendency on all Polish pairs.

Technical analysis EUR/USD: the slide under 1.3200 should generates the sell signal with the target at 1.30 (the 200 MA will not be a key support now). The comeback to the bullish trend possible after rising over 1.3300.

Technical analysis EUR/PLN: the move over 4.26 generated a buy signal with a first target at 4.30 (almost reached). The next target is 4.35. A slide under 4.24 suggests a return to range trade 4.22-4.26. If the EUR/PLN slides under 4.22 it generates a sell signal.

Technical analysis USD/PLN: the rise above 3.22 generates a buy signal with a target at 3.30. The comeback under 3.18 negates the bullish singal.

Technical analysis CHF/PLN: the buy signal was generated on CHF/PLN with a first target at 3.52. On the other hand the slide under 3.43 should favor a range-trade between 3.40-3.45.

Technical analysis GBP/PLN: we are getting closer to generate the buy signal (after breaking 5.00) with the target around 5.10. Staying under 5.00 still prefers the short positions.