Daily analysis 08.07.2013

The EUR/USD is under a strong pressure after better-then-expected NFP and upward revision from April and May. The Federal Reserve is getting closer to start QE3 tapering operation. The zloty is giving back most of the Thursday's gains. Today, the budget deficit will be probably revised.

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

• 12.00 CET: Industrial production in Germany (survey: minus 0.5%)
• 15.00 CET: ECB chief Mario Draghi is going to speak in Brussels

EUR/USD is hammered by the NPF data

On Friday we received one of the most important data regarding the currency market – NFP. The report was not only much better-then-estimated (195k vs 165k), but also April's and May's payrolls were revised upward in total of 70k. It was not a surprise that the EUR/USD dived toward 1.2800 levels. In line with Euro-dollar slide, the 10-year US treasuries yields jumped to 2.75%. It was a clear sign that the QE3 tapering is going to start sooner then later. Similar comments can be found in the press. US chief economist at UniCredit told the Financial Times that “the monetary policy implications of the jobs report was straightforward. He also added that “We continue to expect that the Fed will begin to wind down its asset purchases in September” In line with a broad expectations sees the future Paul Dales, senior economist at Capital Economics. He told the Wall Street Journal that “the latest strong jobs figures make it likely the Fed will start to taper its bond buying by September. It is also worth to note that 6-month NFP (chart included) average is over 200K. The level has been mentioned by Federal Reserve members as a sufficient to start the asset purchase reduction.

The Thursday's ECB Mario Draghi dovish statement and surprisingly solid US job data has been pushing the EUR/USD lower. A few days ago I was mentioning the possibility that markets would start “playing” weaker dollar before the “minutes”. Now the probability that such scenario will materialize is much lower. There is also a slim chance that Ben Bernanke statement (just few hours after the “minutes”) will change the EUR/USD bearish perception.

Summarizing there are no visible sings on the horizon, which can support the EUR/USD. The ECB is clearly dovish and the macro data increasing the odds for sooner tapering. Moreover the European economic reports are not recovering strongly enough to give a boost to the common currency, and there are still threats from Greece, Spain and Portugal. Therefore the most traded pair should remain under pressure for longer.

Roller coaster on the zloty. Budget deficit revision today?

The second part of the previous week was quite volatile on the zloty. The end of Polish interest rate cut cycle and some dovish comments from the ECB supported the PLN, but the Friday's NFP data erased almost all gains. Taking into the account the rise of US treasuries yields, the Polish government bonds will also be under pressure and weigh on the local currency.

Polish daily paper “Dziennik Gazeta Prawna” claims that Finance Minister Jacek Rostowski will announce the deficit increase by around 10 billion PLN today. The “DGP” reports that the budget revenue shortfall is around 25-30 billion PLN. The estimated savings will be around 10 billion (mostly in the military) and the NBP profit around 5 billion should give around 10-15 billion more regarding the deficit. The market has been, however, aware of the budget revision at least for two or three months. It can be also confirmed by Beata Harasim, a London-based fixed-income manager at BlackRock Inc. She told Bloomberg that “Growth has been weaker then forecast so it's a natural process to make adjustments”. Harasim also added that “As long as the government manages to find some spending cuts” and “ the economy rebound in the second half, I wouldn't worry too much”.

Summarizing the zloty should stabilize for longer between 4.28-4.35. In the medium-term there is still higher probability that we will rise over 4.40 on the EUR/PLN then fall under 4.20.

Expected levels of PLN according to the EUR/USD rate

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

Overall technical situation on the analyzed pairs

The EUR/USD slided under 1.2900 which confirmed the market bearishness. The CHF/PLN and EUR/PLN generated the sell signals. The pound is close to generate the sell.

Technicznie EUR/USD: in line with the trend the EUR/USD is sliding toward 1.2800. If the support fails then we can expect the further downward pressure toward 1.2650 (lows form November 2012). Alternative scenario is a rise over 1.3070 with a buy signal.

Technicznie EUR/PLN: the pair fall under 4.28 what generated the sell signal with the target around 4.22. Alternatively the rise over 4.32 is again a buy signal.

Technicznie USD/PLN: the USD/PLN is still in the rising trend. After rising above 3.35 the next target is set around 3.50.

Technicznie CHF/PLN: the sell signal was generated after falling under 3.48. The taraget is now 3.42. Alternatively the rise over 3.52 should be bullish.

Technicznie GBP/PLN: the 5.10 target has been reached. The next one is around 5.20-5.22. The slide under 4.97 should favor bears.