Daily analysis 08.04.2013

Weak data from the U.S labor market can push FED to leave QE at unchanged level till the end of the year. Extended asset purchase from the States and aggressive easing in Japan resulted in reshuffle on currencies and bonds. The pound is stronger after weak NFP and confirmation of AAA rating form S&P. The zloty is stronger thanks to capital flow from Asia and on the dollar sell off.

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

• ◦ 12.00 CET: Industrial production form Germany (survey: +0.3% seasonally adjusted)
• .15 CET: Ben Bernanke conference in Stone Mountain

Worse then expected data form the States changes the currency market perception

Friday's news of the day was the NFP data the States. At 14.30 it turned out that the March payrolls were much lower then expected. Analysts surveyed by Bloomberg expected the reading around 190k whereas the actual data showed the growth by only 88k. At that moment it didn't matter that two previous reports were revised upwards (by around 60k; more then half of the missed amount), and the current will also probably be better. The greenback instantly slided and EUR/USD soared above 1.3000 mark. It was, of course, caused by mounting speculations that due to worsening job market the FED will leave QE3 at unchanged level till the end of the year. Besides FOMC we have also BoJ massive asset purchase (the central bank will buy around 70% of newly issued bonds on a yearly basis). At that moment we could observed a shift form the yen and dollar to more risky assets which can give more, but still relatively safe returns (German, UK, French, Polish and even Spanish or Italian debt yields slided). At the end of the U.S session even American indicies were able to reduce most of the losses – in a fight between cheap money and fear of economic slowdown the latter was the looser.

The Thursday-Friday shift was continued during the Asian session today (record-weak JPY, another multi-year highs on Japanese stocks) and has been extended also to the European opening (Spanish 2-year bonds at 2%, the lowest level since 2010).

As usually at such moments there is a question: How long can it last?. The answer is clear. It depends on the FOMC. If the Committee is concerned that the slowdown in the job market will be persistent (some hints we can get during today's Bernanke conference or from Wednesday's minutes) then we can be certain that QE will stay at the current level for several months and then EUR/USD rise, PLN strength, stock markets soar, and fresh lows on governmental yields will be frequent headlines.

The pound is stronger on the U.S data. Standard&Poors confirms U.K's AAA rating

Weakness of the dollar, rating confirmation and no more additional easing form BoE gives the sterling some lift and we moved avove 1.5300 on GBP/USD. Similarly to other currencies the pound is sensitive to the QE. At the moment it seems that the FOMC is more determined to ease so we can forget about the weak U.K economy and bet on more gains on the cable. A bit different situation is on the GBP/PLN. Both currencies seems to go in the same direction so the levels around 4.90 should be maintained.

Capital flow from Asia on Polish debt market. MPC meeting on Wednesday

Asian funds which were “forced” by BoJ to look for higher return then 0.3% on 10 year bonds and runaway from the weakening yen has found some semi-heaven stops like Poland. We could quickly see the zloty to strengthen and witness record-low levels on 10-year benchmark yields. Another argument supporting higher valuations of Polish assets is possibility to continue QE till the end of 2013. More gains of EUR/USD and news from the Federal Reserve can still push PLN higher, but the strong support around 4.1200 on EUR/PLN will not probably be broken.

We don't expect any surprise form the Polish MPC meeting this time (at least regarding the move on the rates). It will be crucial to listen governor Belka and get any clue whether the Committee is concerned with the diminishing probability of economic rebound in the 2H (similarly to Draghi, which can put slight pressure on the zloty) or still estimates the improvement in the second half of 2013.

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

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

Technical analysis EUR/USD: we did move above 1.3000 so it changes the overall tendency. The next resistance level is around 1.3150 (50 DMA) and in extension 1.3300 (from the last slide started). The alternative scenario is slide under 1.2850 (200 DMA and 50 % Fibonacci retracement level) and extension of the bearish move toward 1.2700.

Technical analysis EUR/PLN: the slide under 4.1500 significantly decreases chances for another probe to move over 4.2000. The base case scenario is still range trade of 4.15-4,20 but the breakout form the rising triangle and sliding under 50 DMA can foresee an attack a bearish move at 4.1500 and a will to test another support at 4.1200.

Technical analysis USD/PLN: the slide under 3.22-3.21 (38.2% Fibonacci retracement level and 200 DMA) suggested the end of the bullish trend and switch to the slide with the target around 3.1400. The alternative scenario is bullish trend, but only when it reaches 3.2500.

Technical analysis CHF/PLN: the rising trend has not been negated yet. We have to slide under 3.4000 to close the longs and think about opening shorts. The alternative scenario is slide under 3.4000 with targets around 3.36 and 3.34 in extension.

Technical analysis GBP/PLN: a slight weakness on the pound does not negate the short term bullish trend. The base case scenario (short-term) is still move toward 5.0000 and an attempt to break it and change the medium term outlook. On the other hand a slide under 4.89 should be a trigger to close longs and under 4.85 to open new shorts (a come back to both short and medium term bearish trend).