Daily analysis 09.12.2013

Solid data form the US job market didn't scare the EUR/USD bulls. Jon Hilsenrath on increasing chances for December tapering. Bloomberg survey also shows an earlier QE reduction. The zloty took advantage form euro-dollar rise, strong US equities and ignored the yield rises on treasuries.

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

• Besides the market consensus we are also publishing the consensus range. It gives more info how economists predict the incoming data and what kind of impact can be generated from surprising reports.
• 18.50 CET: James Bullard speaks (voting FOMC member from St. Louis).
• 20.15 CET: Richard Fisher speech (2014 FOMC voting member from Dallas).

The data. Jon Hilsenrath. The survey

On Friday we had a series of surprises. The employment data published by the BLS turned out to be much better than expected – 203k vs expectations at 180k. Moreover the reports from previous months were revised upwards by 8k. However, the most surprising element was a significant unemployment drop from 7.3% to 7.0%, whereas the market consensus stood at 7.2%. It was the lowest reading since 5 years. Despite that the unemployment rate is quite disturbed by discouraged workers and demographic issues the Federal Reserve is still take the number pretty seriously – forward guidance is depended on unemployment rate. We can, of course, try to find the negative aspects in the BLS data, but this should not be the case. No doubts, the report is an element which should speed up the taper process.

Jon Hilsenrath from “The Wall Street Journal” pointed out an interesting case. He compared the data which was available for the Federal Reserve during the September meeting (taper was a close call then) and that published till now. Firstly the 3-month NFP average was at 143k in September and now it stands at 193k. Three months ago the FOMC was concerned with the fiscal policy and incoming “government shutdown”. Currently the budget issues seems to be under control, and the payrolls have increased significantly. We can then assume that odds for the March taper has decreased substantially. On the other hand the December or January date seem to be in the game now.

A similar conclusion we can find in the Bloomberg survey. The news agency claims that 34% of economists asked on Friday claim that the Federal Reserve will start winding down the QE next week (in November it was only 17%). On the other hand the March taper is chosen by 40%, whereas it the the preferable date for 53% back in November. The market confirmation of earlier reduction can be found in treasuries where yields on 10-year papers briefly jumped over 2.90%.

Today we have James Bullard speech (dovish, concerned on too low inflation). However, it is hard to expect that St. Louis Fed President will make any strong remarks on the December decision. His colleague from Chicago Federal Reserve (also dovish) said on Friday (as “WSJ” reports) that the unemployment report was “good” but he would like to “see a couple of more months of similar data for assurance that the improvement was sustainable.

Summarizing, the EUR/USD clearly ignored solid NFP reading and continued to march higher closing the week at 1.3700. It is possible that the most traded currency pair will change the criteria at which it generates the moves. We can come back to a well know theme when “risk on” after solid US data was moving the dollar lower. Additionally the Friday move opens a path to the year's highs above 1.38.

The zloty moves higher on “risk on”

The PLN investors were not scared by better-than-estimated data from the US and earlier taper expectations. In result the Polish currency, in line with other EM assets, gained some value. It is possible that the zloty can return to the old “game” when solid US data was increasing the risk appetite and the zloty was strengthening.

Regardless which theme is going to be chosen in the coming weeks the PLN should be traded in the narrow range – between 4.16-4.20 to the euro. Some more attention can bring the CHF/PLN pair which does not want to fall despite the zloty is getting stronger. It is a result of the USD/CHF fall under the 0.90 mark. If it keeps sliding and the support at around 0.89 is breached we can even expect a fall toward 0.86 level. It will put an upward pressure on the CHF/PLN despite a stronger zloty to the euro.

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

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