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Daily analysis 07.03.2013

7 Mar 2013 13:04|Marcin Lipka

EUR/USD around 1.3000 and GBP/USD close to 1.5000 before the central bank decisions. Changes in the asset correlation on global financial markets. The Polish zloty significantly weakened just after the MPC unexpected 50 bps rate cut.

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

  • 12.00 CET: German factory orders (survey: +0.6% m/m and +1.6% y/y)
  • 13.00 CET: BoE rate decisions (survey: 0.5% and asset purchase unchanged at 375 billion pounds)
  • 13.45 CET: ECB interest rate decision (survey: 0.75%)
  • 14.30 CET: ECB conference after the rate decision
  • 14.30 CET: weekly jobless claims for the states (survey: 355k)

Changes in the markets correlation. BoE and ECB in focus.

During the last hours EUR/USD and GBP/USD moved to its recent lows but it should not have any impact regarding their performance after the central banks decisions. Until I go to the BoE and ECB decision scenarios I would like to note an interesting case concerning diminishing correlation between assets. For many years there have been a well know rule that when U.S stock rises, the dollar index slides. Currently, according to Bloomberg, the negative correlation is (-0.2), whereas in November 2011 it was (-0.83). One of the reason is lower probability that FED will continue its asset purchase (85 billion per month) till the end of 2013 (I did point out that case after the recent “Minutes”), Another elements which are giving strength to the greenback are decreasing trade deficit, relatively strong economy, and the fastest capital flow to the U.S equities since July of 2009. Additionally the dollar is supported by yen sell off (on USD/JPY pair) through aggressive monetary and fiscal easing in Japan, and sterling short positions (on GBP/USD) regarding weak British economy with possible additional asset purchase. The only element which can stop or reverse the current trend is an indication that QE3 stays for longer then the market expects. We can get some hints regarding that issue on March 20th after the FOMC meeting. Coming back to the current situation, today the main event on the EUR/USD will be the ECB press conference. Any Draghi's concerns on “too low inflation”, weaker GDP growth in the 2nd half, discussions on the rate cuts or more radical measures (negative deposit rates) should weaken euro to the dollar. On the other hand if ECB chief omits the direct reference to the rate cuts (claiming that the decision to leave rates unchanged was unanimous) it can generate a strong rebound signal and push the common currency even toward 1.3200. Today we have also a crucial decision on the pound on additional asset purchase. Most analysts (28 out of 39) by Bloomberg expect that BoE leave the QE at the current level (375 billion pounds), but the rest predict that the Central Bank increase the bond buying program by 25 billion GBP. Reactions on cable are usually quite strong so it is possible that when we don't see any additional money being pumped to the economy the GBP/USD can jump even to 1.5200 (GBP/PLN to 4.8400. On the other hand if additional easing is injected to the system than we can see the sterling around 1.4800 (GBP/PLN around 4.70).

Interesting Polish MPC rate decision.

Undoubtedly investors were surprised by the yesterday interest rate decision. The Polish MPC lowered the benchmark by 50 bps (from 3.75% to 3.25%). The market expected the committee to leave rates unchanged or cut it by 25 bps. The fact that RPP lowered the rate by more than economists predicted is nothing wrong, but I would like to point out the other fact. The recent statements from neutral MPC members (professor Belka, and professor Hausner), and the press release after the last meeting suggested that only two scenarios are available – 25 bps cut or leaving at 3.75% level. After the members received National Bank of Poland inflation and growth projection some/most members (except professor Bratkowski, professor Chojny-Duch and professor Zielińska-Głębocka – they were in favor of deeper cuts earlier) changed their mind significantly and supported the 50 bps cut. It seems to be clear that the Committee pay close attention (maybe to close?) to the NECMOD model and despite many other signals from the economy they waited with the necessary decision till March. In the following weeks the zloty should pay attention to the performance of U.S equities and local macroeconomic reports.

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

EUR/USD 1.2950-1.3050 1.3050-1.3150 1.2850-1.2950
EUR/PLN 4.1200-4.1600 4.1200-4.1600 4.1200-4.1600
USD/PLN 3.1600-3.2000 3.1400-3.1800 3.1800-3.2200
CHF/PLN 3.3500-3.3900 3.3500-3.3900 3.3600-3.4000


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


GBP/USD 1.4950-1.5050 1.5050-1.5150 1.4850-1.4950
GBP/PLN 4.7500-4.7900 4.7700-4.8100 4.7300-4.7700


Technical analysis EUR/USD: the bearish trend is still valid and any rebound should be used to open shorts. The next support level is 1.2900-1.2840 (head and shoulder target, 50% Fibonacci retarcement level and 200 DMA). The comeback to the bullish trend is possible after moving above 1.3300 (currently low probability).



Technical analysis EUR/PLN: yesterday strong rebound does not rule out the continuation of the sliding tendency. It is worth to not, however, that if we stay above 4.1500 the 50 DMA crossing 200 DMA (golden cross) can generate the buy signal and the pair can jump over 4.1900 what in result can generate the buy signal.

Wykres 1

Technical analysis USD/PLN: The base scenario is still (confirmed by yesterday candle) a move toward 3.24-3.27 (between 200 DMA and 50% Fibonacci retracement level). The comeback to the bearish trend is possible after sliding under 3.1200 (50 DMA).

Wykres 2

Technical analysis CHF/PLN: the pair looks pretty stable now. Trading between 3.33-3.41 is neutral for the CHF/PLN and it is also the base case scenario. Breaking up the range trend should generate the buy signal and sliding under 3.3300 should attract bears.

Wykres 3

Technical analysis GBP/PLN: the bearish trend on GBP seems to be strong and any rebound not exceeding 4.90 (23.6% Fibonacci retracement level and 50 DMA) should be used to open new shorts. The pivot point is around 5.00. Analyzing 5-year chart we can see that the target of the recent move can be set around 4.5000.

Wykres 4

7 Mar 2013 13:04|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.

See also:

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Daily analysis 04.03.2013

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