Daily analysis 08.10.2013

EUR/USD is holding steady under 1.3600. China and Japan worried about the prolonging of the raising the debt ceiling negotiation. The Democrates suggest the readiness to aaccept the short-term solution. The Polish zloty still stable. Professors Chojna-Duch and Zielinska-Glebocka on future monetary policy.

• The most important makro data (CET- Central European Time). Survey is supplied by Bloomberg unless otherwise noted.
• No key macroeconomic data today

External pressure. Very short-term solution

We are still under a slight revision on EUR/USD. The shifting of exiting from quantitative easing (until December) and ists economical aftermath of the government shutdown (relatively small so far) were included in the prices. The dollarawaits the short-term signals that can prolong its downward revision (the tomorrow’s minutes publication or the short-term solution of the raising the debt ceiling issue).

We have had two threads concerning the fiscal negotiations of the USA yesterday. This case was joined by the third party - China and Japan. The Democates sugeested that they might accept raising the debt ceiling with the amount allowing the United States to meet liabilities over the weeks to come. Starting with the first issue, the Financial Times reports that Beijing has expressed its concern over the prolonged stalemale in the USA and stated that ‘the clock is ticking’. The Chinese officials call the American politians to ensure their actions don’t threat the Chinese business. According to official information, China has 1.28 billion of the US bonds and the Financial Times suggest that amount may be much larger as many of the Beijing investments are carried out by brokers. Japan has other type of concern. The Land of the Rising Sun is worried about the yen’s value increase in case the American trouble continues and the dollar weakens. Stronger currency along with the increased uncertainty on markets can undermine the economic development generated lately by the Abenomics.

Among the possible solutions a new concept has appeared. The Democrates suggest they may agree to raise the debt ceiling so that there is money to pay invoices for a few next weeks (exceeding the currently repeated date - October 17). Such suggestions was presented by the Washington Post. It is another idea that in no way solves the problem but gives more time to negotiate (at least in the polititians’ eyes). This move would not improve the dollar’s situation, though (apart maybe from couple of hours after the voting). The longer the case is on the docket, the greater the chance that it will have negative impact on the American economy and the more probable that the FED will prolong the QE program in its full amount or will withdraw from it slower than the market expects.

There is no doubt that along with every day of the budget suspension the American credibility suffers. It is not about the US ceasing to discharge its liabilities but about the political risk that the reshuffle can cause even in safe heaven. EUR/USD over the next few hours should remain close o the current levels. More volatility can be caused by tomorrow’s miutes publication (a slight decrease is expected as it should turn out that the tapering was really close).

Some confusion in monetary policy

The Polish currency is still moving in a narrow range of fluctuation, however, the increasing probability of longer QE gives the zloty’s bulls a small advantage. That can result in testing the 4.18 limit on EUR/PLN (probably unsuccessful).

The statement of professor Chojna-Duch for the Polish Press Agency caused some confusion yesterday. The member of RPP (Monetary Policy Council) has not excluded the interest rates cut in 2014. However, her interview for TVN CNBC indicates that the concept of returning to the gentle setting has many conditions - increase lower than expected, maintaince of low inflation, fiscal consolidation and increasing interest rate disparity between European Union and Poland. Probability of meeting all these conditions is rather low, so interest rates cut is unlikely. Professor Zielinska-Glebocka took on a different tone. Like Chojna-Duch, she is considered to be the RPP dove, although of lower level. In TVN CNBC’s “Balance” she stated on air that the economic development may reach 1.3 or even 1.5 per cent this year and in 2014 as much as 3 per cent (the government’s assumption is 2.5%). Zielinska-Glebocka does not foresee the interest rates cut.

To sum up, the zloty should remain stable with low appetite for strengthening. RPP members’ comments should be neutral for the debt market as well as the zloty.

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

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

The general technical situation of the discussed currency pairs:

We are getting close to the next EUR/USD goal - 1.3650. Another will be the two-year highs and 1.4000. Mix on the zloty pairs.

Technical analysis EUR/USD: the target set currently by AT is around 1.360 and in prolonging even 1.4000. Falling below 1.3400 is a signal for taking long positions with tartget at 1.3200.

Technical analysis EUR/PLN: returning above 4.22 is a advantage of the buyer with the first goal at 4.26 and the next at 4.30. The alternative falling below 4.18 is a signal to take short positions with the target at 4.10.

Technical analysis USD/PLN: the target for USD/PLN is still 3.05 (we were close to that lately). Since the sell signal the downward movement was at the level of over 15 groszy. Short positions are prefered until the rate is above 3.15.

Technical analysis CHF/PLN: the comeback under 3.43 negates the buy signal. Now the base case scenario is a range trade between 3.40-3.45. Sliding under 3.40 generates a sell signal with target at 3.33.

Technical analysis GBP/PLN: by breaking 5.03, the pair generated the buy signal with the first target at 5.10 and then 5.20. Falling below 4.97 is a signal to take long positions.