Daily analysis 08.02.2013

EUR/USD did fall 150 pips in consequence of Mario Draghi conference. The ECB president was concerned with to low inflation which also could be under pressure regarding the stronger euro. The EU budget summit will not have any effect on the PLN or EUR. Yesterday the zloty strengthen slightly to euro what was the result of broad euro weakness and higher chances that interest rate disparity between the Euro Zone and Poland will widen.

Macro data (CET- Central European Time):

• No major macro data which will impact the global currency market

Draghi weakened the euro, but he didn't worsen the global sentiment.

The week's top event run through in line with the bears expectations. As early as after the first question to ECB President the shorts got an argument to sell the common currency. Draghi said that ”we will certainly want to see whether the appreciation is sustained and will alter our risk assessment as far as price stability is concerned”. He also added later, regarding recent developments in other central banks, that” if these policies produce consequences for the exchange rates that do not reflect the G20 consensus, we will have to discuss this” Concerning the first statement of ECB chief it is clear that with the decreasing inflation pressure the Central Bank will be able to lower the interest rates in the future and therefore weaken the euro. The second cited answer caught by the markets was a slight remark toward the Japanese central bank stance on weaker yen. In my opinion he was referring to competitive devaluation which in result can impact EU trade . If the yen weakness is stopped then we can seen also the slide in euro value (stronger yen means usually weaker euro). On the other hand despite Draghi's inflation comments he sounded rather optimistic on economy. He mentioned the increasing confidence in Euro area, improving competitiveness in some countries and incoming gradual recovery in 2H of 2013. Nicko Spiro, managing director of Spiro Sovereign Strategy nicely summarized Draghi's conference in today's Financial Times: “He managed to talk down the euro while talking up the eurozone”. Coming back to the rate of the common currency after yesterday's strong slide we can expect further depreciation of euro in the short term especially that incoming events (G20 summit, Italian election) can put pressure on EUR. In the medium term however, it is more possible that we will come back to the bullish trend taking into account that ECB is the only out of four central banks (BOJ, FED, BOE) which does not proceed QE. The widely discussed in the media EU summit will not have any effect either on euro or on PLN. The relatively low value of the budget (around 1% of EU GDP), the very long time horizon (2014- 2020) and mainly the political repercussions of the negotiation results will not lure the interest of currency traders.

Average debt auction result, but PLN stronger.

We didn't have a successful debt auction yesterday on the Polish market. The maximum target was not reached, the yields on 5-year bonds were higher by 8bps then in January and there was no a supplementary auction. It looks quite clear that at current prices and reduced expectations on the further rate cuts (maximum one more in 1H of 2013) it will be difficult to repeat the results from January. Despite the mediocre interest in Polish papers and slide of EUR/USD (or maybe thanks to the slide?) we could observed a slight appreciation of PLN to EUR. It can be a consequence of rising probability that the interest rate disparity can widen in the future (when ECB cuts, and NBP doesn't). The moment of such a move can be quite distant but the market tries to evaluate it. Today the zloty should be traded between 4.15-4.18.

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

Technical analysis EUR/USD: the break down of 1.3450 generated the short term selling signal with the target toward 1.3300-1.3350 (levels of January consolidation and 23.6% Fibonacci retracement level). The comeback to the bullish trend is possible after reaching 1.3520 (for now less possible that the continuation of the slide). In the medium term however the trend started in June 2012 can be reversed after falling below 1.3000.

Technical analysis EUR/PLN: the slight depreciation of EUR to PLN can give some hope for bears. The move however, has to be confirmed by closing below the 200 DMA (4.1650) and falling below 4.1500. Then we can expect the pair to come back toward range trade between 4.08-4.12. For now the upside move is still more possible then the downside one.

Technical analysis USD/PLN: despite the yesterday chantes the technical situation has not changed much. The bulls will have push USD/PLN above resistance level (50 DMA - 3.1150) and then over resistance at 3.1400. The breakout of 3.14000 should change the trend and spur move toward 3.25- 3.27. We should remember however, that the trend is still bearish and until 3.1400 is broken any level should be used for opening short positions.

Technical analysis CHF/PLN: Again nothing changes on CHF/PLN. Bears should be waiting until the CHF/PLN moves under 3.3300. Such a slide will initiate the sell signal with the target around recent lows (3.27). The longs are set to open buy positions above 3.41 and wait until 3.4800 is reached (50% Fibonacci retracement level).