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Daily analysis 07.01.2013

7 Jan 2013 11:03|Marcin Lipka

Friday's U.S equities closing around 5-year high spurred some upside correction on EUR/USD. In the coming days both Polish MPC and ECB will decide on interest rates. It is worth to mention that fist time since August 2011 EUR longs exceeded shorts according to CFTC.

Macro data (CET- Central European Time):

  • No major macro data

Bullish weak on NYSE; slides on EUR/USD.

The first week of the New Year was pretty unusual. On U.S stocks we had the highest closing since 5 years, European equities were rising, and peripheries yields were sliding (both Spanish and Italian 10 year benchmarks by more then 20 bps). From the “risk on” trade EUR/USD and CEE currencies were separated. One of the eurodollar weakness was FED minutes. However, it was published on Thursday evening, and at that time the EUR was already loosing 200 pips on the week. The other reason of non-standard currencies' behavior was the time period (beginning of the year). Some of the equities funds were lured by 2012 stock performance and partial resolution on the fiscal cliff. They were heavily buying in anticipation that 2013 will repeat 2012 returns. On the other hand currency investors (usually having short term horizon) wanted to use the positive sentiment and take some profits. In the coming weeks we will see whether the recent decorrelation was just short lived or it is a new market trend.

Speculators first time net long on EUR/USD since August 2011.

Every Friday evening CFTC (Commodity Futures Trading Commission) publishes the amount of Non-commercial contract on many different instruments. It does also reveals EUR/USD short and long positions. Even though the data is always 3 days old it is a good barometer for medium and long term investors. In the last week first time since August 2011 the amount of long positions exceeded the shorst (+5126 contracts). It is quite interesting that since June 2012 (when Mario Draghi said he would do whatever it takes to preserve the euro) the volume of long positions rose from minus 216k to plus 5k. It means that market participants reduced shorts (or opened longs) in the value of more than 27 billlion EUR (every contract is worth 125k euro). Additionally if we analyze the positions on contracts and the spot rate of EUR/USD we can clearly see that whenever the amount of contracts was crossing equilibrium (the even amount of shorts and longs) either from top to bottom or opposite the EUR/USD was sliding or rising by hundreds of pips afterward. It is not 100% certain that EUR/USD will behave the same way this time but it is good to be cautious trading on the short side.

Week of central banks.

Firstly the Polish MPC will decide regarding the interest rates. Taking into account the recent members' statements, and market expectations the cut by 25 bps is a sure bet. I don't expect move by 50 bps (even though it was quite close in November), because we already had 25 bps decrease in December and the Committee is in favor of gradual easing. Till Wednesday we can see some PLN weakness regarding the MPC decision but the second half of the week suppose to be on the green side for the zloty. However, both the depreciation and appreciation will not exceed 0.02 PLN on that news. More speculation we can expect regarding the ECB move. After the last meeting there were some reports regarding willingness to cut the benchmark rate to 0.5%. The Bloomberg survey shows that 42 out of 45 economist expect no move from ECB. The same opinion share former European Central Bank economist Christian Schulz. He claims that” First of all, it wouldn't really achieve anything; secondly, policy makers are still unsure about the impact on the deposit rate; thirdly, it looks like we are reaching the bottom in terms of the economy and the Bundesbank would never agree to it” His arguments seems to be quite valid and I agree that rate cut is not likely. The Euro will behave similarly to PLN. Until the meeting is over we can see some weakness of the common currency but after the Thursday's decision we can expect a bit of strength.

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

EUR/USD 1.2950-1.3050 1.3050-1.3150 1.2850-1.2950
EUR/PLN 4.1200-4.0900 4.1100-4.0800 4.1400-4.1100
USD/PLN 3.1800-3.1400 3.1600-3.1200 3.2000-3.1600
CHF/PLN 3.4100-3.3800 3.4000-3.3700 3.4300-3.4000

Technical analysis EUR/USD: the technical analysis still shows the downside pressure and a possible breakout of 1.3000 mark. Then it is expected to test 1.2900 and in extension move toward 1.2820-1.2780 (38% Fibonacci retracement level and 200 DMA). The reverse move over 1.3150 will be the bullish sign and the option to open longs positions.


Technical analysis EUR/PLN: we are on the resistance level (50 DMA and 23.6% Fibonacci retracement level). The breakout of this levels opens the way to 4.1650-4.1800. If the EUR/PLN bounce back from 4.1200 we can see the come back to the range trade (4.06-4.12).


Technical analysis USD/PLN: strong bullish move increase the probability of successful test of 3.1600 and then move towards 3.2200 and in extension to 3.26-3.28 (resistance of 200 DMA and 50% Fibonacci retracement level).


Technical analysis CHF/PLN: CHF/PLN is fighting with 3.4100 (23.6% Fibonacci retracement level and 50 DMA). The breakout of this level opens the way to 3.4600 where there is strong resistance (200 DMA and 38.2% Fibonacci retracement level).



7 Jan 2013 11:03|Marcin Lipka

This commentary is not a recommendation within the meaning of Regulation of the Minister of Finance of 19 October 2005. It has been prepared for information purposes only and should not serve as a basis for making any investment decisions. Neither the author nor the publisher can be held liable for investment decisions made on the basis of information contained in this commentary. Copying or duplicating this report without acknowledgement of the source is prohibited.

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