Daily analysis 10.01.2013

Nightly data from China suppose to improve the global market sentiment but investors will be focused mainly on the ECB decision regarding interest rates. In Poland the MPC lowered, as expected, the benchmark rate by 25 basis points (to 4%). The main surprise was the central bank conference when Belka announce that the easing cycle is ending.

Macro data (CET- Central European Time):

• 13.45 CET: ECB rate decision (50 out of 55 analyst expect that ECB will leave the rate unchanged
• 14.30 CET: ECB conference
• 14.30 CET: Jobless claims in the U.S

Better then expected data from China, but markets will be waiting for the Draghi decision/conference.

After a very calm session on the global currency markets (difference between EUR/USD high and low point was only 60 pips), some good news came from China were export increased 14 y/y whereas analysts' estimated growth around 4% y/y. However, only the AUD jumped after the data, and Eurodollar lacked any reaction. The common currency is clearly waiting for the ECB decision ignoring either good or bad reports (for example yesterday's much worse then expected industrial production report. Indecisiveness on EUR/USD and recent downside pressure are the effects of December's Draghi statement regarding intensive discussion about rate cut. The similar signals were coming from undisclosed sources close to the ECB with opinions that the committee was not actually either in favor or not in laving the rate unchnged. Quite an interesting analysis about ECB dilemma presented William L. Watts on www.marketwatch.com portal. He sets 3 reasons against the cut and one in favor. First of all is inflation which is still above the Central Bank goal. Secondly the monetary transmission channel does not work properly. It means that peripheries still borrow money at much higher yield then the core Europe and any move on the rate will not change it (OMT program was set to lower the differences). The third argument can be the slowly improving economy. Recently published German IFO bounced above 100 points mark second month in the row, and December PMI Composite for the Eurozone despite being under 50 mark (which separates expansion form contraction) is at 9 month high (47.2). The only reason, according to Watts, which favors the rate decrease is weak current economic situation and it can put pressure on ECB to lower the benchmark.

In my opinion if the rate stays unchanged (and the negative deposit will not be set) I expect some bullish move on EUR/USD. Additionally if Draghi signals some economic improvement on the horizon we can the move above 1.3150 level.

PLN gained ground after Belka's easing ending statement.

The 25 bps rate cut decision was widely expected and already priced in. The markets was waiting for the prof. Belka's conference. However few of the market participants expected it to be so hawkish. All was set after the first question from PAP report, who found that the MPC changed a bit the last sentence of the press release. After the December meeting the committee stated that if economic slowdown is confirmed and inflation pressure is limited “the Council will further ease monetary policy. Yesterday the MPC using the same words regarding economic situation stated that” The Council does not rule out further policy monetary easing” Belka then evolved the statement saying that” Polish Central Bank is ending one round of monetary easing” and” further Polish easing is possible ore even probable”. Especially the first part of the sentence spurred a significant reaction on the markets with EUR/PLN sliding by 0.03 PLN At the end of the conference professor Zielińska-Głebocka tried slightly reduce to meaning of Belka's opinion saying that “ message regarding the ending cycle was a bit untoward and we can rather expect some pause then ending”. That words however, were rather dismissed by Belka claiming that “ a part of the Committee wants to maintain a certain level of real interest rate”. The second sentence seems to be equally important as the first one. Some Members are in favor to held the real interest rate during the slowdown around 1.5% (please look on the chart where yellow line is reference rate and white CPI). If that trend lasts during the current conditions the only cut is expected (in March probably) in the following 6 months because according to the Blomberg estimation Q3 CPI will be around 2.2%. Today the Finance Minster, Rostowski's feedback was quite firm. He claims that the end of easing cycle will have a negative influence on the economy, and will increase the unemplyment. The government reaction is understandable because it predicted that with fiscal belt tightening some responsibility to stimulate growth will take MPC. It it does not happen there is an increasing probability that 2013 GDP and budget will be revised...

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

Technical analysis EUR/USD: The Eurodollar is still holding above 1.3000 mark what a bullish sign. However to resume the upside trend we will have to come back above 1.3150. On the other side sliding under 1.3000 will give signal to fast slide toward 1.2900

Technical analysis EUR/PLN: yesterday's move on EUR/PLN was impressive. The resistance level worked perfectly and pushed the rate to lower bound of the range trade (4.06-4.12). The signal to the further EUR depreciation will come from breaking 4.06 and will set a target for 4.0200.

Technical analysis USD/PLN: the yesterday move shows that upside trend is in trouble. If it falls below 3.1100 the sell signal will be generated for the move toward 3.05. On the other hand a significant weakness is possible after breaking 3.1600.

Technical analysis CHF/PLN: the bounce back from 50 DMA and 23.6% Fibonacci retracement level and slide to 3.3700 level negates the bullish move. If we successfully test 3.3600 the next stop is possible around 3.3200.