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Daily analysis 09.05.2013

9 May 2013 13:44|Marcin Lipka

Yesterday we got again better-then-expected data form German economy. No statement from G7 meeting is also supporting EUR/USD. The pound before today's interest rate decision. Polish MPC decided to lower the benchmark by 25 bps to 3% on refi. Strong moves on bonds with yields approaching 3% on 10–year papers.

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

  • 10.30 CET: Industrial production from the U.K (survey +0.2% m/m and minus 1.6% y/y)
  • 13.00 CET: Interest rate decision in the U.K (survey 0.5%) asset purchase programe – 375 billion pounds – unchaged
  • 14.30 CET: U.S jobless claims in the U.S (survey 335k)

Industrial production from Germany. No statement from G7. EUR/USD “shrugged off” ECB and U.S jobs data.

We finished another day with better-then-expected data from Germany. The industrial production jumped 1.2% vs analyst's estimates at around minus 0.1%. It is worth to note, however, that recently published leading indicators (PMI, Ifo, ZEW) from Poland's west neighbor falls short of expectations. The key question is then whether it was just a slight up-tick in the production readings or the leading indicators were disturbed by, for example, by Cyprus crisis or Italian government issues.. The answer for that question can give us a clear hint whether the anticipated economy rebound is still possible in the 2nd half of the year or not. The other argument (a bit far-fetched) supporting risk-on sentiment is information that there will be no statement after G7 meeting. As The Wall Street Journal reports “A senior Canadian government official said Wednesday the group may discuss foreign-exchange policies, although the gathering will be an informal debate, and no release of statements is planned”. Investors were worried that if the G7 criticize BoJ for too aggressive monetary policy it will spoil the overall optimism.

It seems that EUR/USD tries to “shrug off” the recent negative events (ECB interest rate cut – bearish for the euro, and solid NFP data – bullish for the dollar), and is pushing consequently north. As usually in such moments I don't recommend to fight with the market even though it is sometimes can be counterintuitive.

Short term opportunity for the pound

The pound has an opportunity to gain some more ground. If todays data beats the expectations and the Central Bank leaves QE unchanged with decreased number of Members supporting the asset purchase program the we can even see a jump around 100 pips. On the other hand the rise can be limited due to July change on the governor seat. Mark Carney (former Canadian Central Bank chief) is viewed by market quite dovish and is expected to put the pressure on the sterling in the medium term.

Unexpected rate cut. Bond market rally. Professor Belka message to analysts.

Yesterday in contrast to most preductions (including the Goldman Sachs') the MPC lowered the refi rate by 25 bps to 3%. The zloty slided by around 0.01 PLN just a second after the announcement, and then strengthened significantly. The local currency took advantage from positive global sentiment and, more importantly, from huge demand on Polish bonds. Only yesterday the 10-year benchmark slided 14 bps and today in the morning it added another 10 bps what pushed the yield close to 3.00 mark. It is worth to note that 10 bps slide on yield result in around 0.8% gain in prices. It means that in 24 hours bond holders earned around 2% and since the beginning of April around 6.5% (yield slide by 80 bps).

Regarding the RPP statement there are two most important cases in my opinion. Firstly professor Belka said that “it is not the beginning of a new easing cycle”. It means that there is not suppose to be more then one cut (at least having in mind the current eco data). Secondly for the question asked by The Wall Street Journal reporter Patryk Wasilewski on erasing a the part of the last sentence in the statement (comparison to the April press release) (“The Council's decisions in the following months will depend on the assessment of the incoming data with regard to the probability of inflation remaining markedly below the NBP inflation target in the medium term and (“regarding economic activity” – deleted part)”. It means that the MPC will much closely monitor the inflation and not pay so much attention to the growth (probably to its diminishing impact on the growth and its overall mandate). It also may want to give a clear signal that if the growth picks up it will not raise the rates too quickly (similarly to the message form the ECB or FED).

Summarizing the zloty has an opportunity to break down the 4.12 level and move toward 4.10 and in extension to 4.05 (in line with the technical analysis).

At the end, just for fun only, it is worth to watch the last 50 seconds of the conference where some remarks on analysts “predictions” from professor Chojna-Duch were complemented by professor Belka, with his specific warm irony, that “we understands that sometimes you changed your mind form one day to another, but we would like to greet very warmly analysts”. Finally the Council was able to respond to moths-long criticism of May 2012 rate hike.

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

EUR/USD 1.3050-1.3150 1.3150-1.3250 1.2950-1.3050
EUR/PLN 4.1300-4.1700 4.1300-4.1700 4.1300-4.1700
USD/PLN 3.1400-3.1800 3.1200-3.1600 3.1700-3.2100
CHF/PLN 3.3700-3.4100 3.3700-3.4100 3.3700-3.4100

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

GBP/USD 1.5450-1.5550 1.5550-1.5650 1.5350-1.5450
GBP/PLN 4.8700-4.9100 4.8900-4.9300 4.8500-4.8900

Overall technical situation on the analyzed pairs:

The technical situation on EUR/USD improved. Now we are waiting for the 1.3200 test and in extension strong resistance 1.3300. There is no new technical signals on the Polish pairs but on EUR/PLN and CHF/PLN we are getting closer to key supports level. USD/PLN is still in sliding trend and GBP/PLN in rising.

Technical analysis EUR/USD: The first goal for the EUR/USD currently is to move over 1.3200 and to test 1.3300 in extension. A fall under 1.3000 signals that shorts are getting more ground and the perception is changing to bearish.


Technical analysis EUR/PLN: recent EUR/PLN changes broadened the range trade (4.12-4.20). Breaking 4.1200 to the downside (200 DMA) should push the pair toward 4.10 and in extension to 4.05. A move above 4.2000 seems to be currently least probable.


Technical analysis USD/PLN: the pair hasn't moved over 3.2000 so the preferable scenario is bearish trend with the target around 3.06 in the medium term. On the other hand breaking 3.20 to the upside will favor bulls with the target at 3.2700.


Technical analysis CHF/PLN: the come back under 3.4000 again prefers the range trade (3.33- 3.40). Falling under 3.33 is more probable.


Technical analysis CHF/PLN: the come back under 3.4000 again prefers the range trade (3.33- 3.40). Falling under 3.33 is more probable.


9 May 2013 13:44|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.

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