Daily analysis 10.04.2013

EUR/USD is again slightly higher and trading now around 1.3080. The market is waiting for FED minutes. Chinese rating lowered by Fitch. The pound is above 1.5300 again thanks to better then expected data from industrial production. Polish currency is stronger. Today we have a rate decision (no change is expected) and the MPC governor Marek Belka conference (more volatility is possible on the zloty).

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

• Between 12.00-14.00 CET – interest rate decision in Poland (survey: 3.25%; no change is expected
• Between 12.00-14.00 CET – interest rate decision in Poland (survey: 3.25%; no change is expected.
• 20.00 CET: FED minutes after 19-20 March meeting

EUR/USD is higher; China – data and rating; Minutes

We have another relatively calm session behind us. The EUR/USD is gaining ground further and has been ignoring the European problems (No government in Italy; economic issues in France). The reason is simple – overall more QE around the world, but not in Europe. Some analysts claim that the monetary policy in Japan can shift some long term capital denominated in JPY to invest in Europe (mainly in bonds) which can support the euro for a longer time. Additionally we have also mounting expectations that FED will not withdraw/reduce the QE3 unit the year ends. We should expect this rhetoric to continue, until a new gloomy news hits the wires or an old topic is brought to out attention again.

In recent hours we have two fairly negative info from China. Firstly the export rose less then expected and moreover was significantly disturbed by tax-brakes issue (fake export just to get the tax benefits. As Bloombreg reports, according to the official data, China sold 44.9% more to Taiwan, but Taipei claims that import from China decreased by 1.2%). Secondly, Fitch lowered Chinese rating denominated in local currency (from AA- to A+. The Wall Street Journal claims, citing Fitch, that the main reason of the downgrade was high level of private sector debt (at 135.7% of GDP) which is the largest in any emerging economy screened by Fitch. Due to the mentioned issues the Monday GDP data from Beijing will be closely watched by investors.

Coming back to the FED there are some rumors that even if today's Minutes will not show more concern about the economy and will not confirm the extension of QE it does not have to boost the dollar. Some market observers claim that FOMC didn't have the job data during their March meeting, so they were not able to refer to it. Do we have a win-win situation on EUR/USD? Tomorrow we should get the answer.

The pound rebounded on better then expected data from production

The sterling after a slight slide on Monday (around 1.5250) pared the losses yesterday thanks to better then expected report on industrial production (gain of 1% vs expected rise of 0.4% m/m). There is no major economic data till the end of the week for the U.K, so the cable will be moving mainly on the dollar behavior.

Strong zloty; MPC conference

It looks that the zloty is not able to initiate even a slight correction from the recent gain. On Tuesday we had another day of stronger PLN (EUR/PLN under 4.12; USD/PLN around 3.14). A bit of volatility we can expect during governor Belka press conference (no rate cut is expected). The confirmation that the March cut was the last in the recent cycle should give another boost the the local currency. On the other hnad if the committee focuses more on diminishing probability of an economic rebound in the 2nd half of the year and suggestions that it is only a pause in the cycle then we can expect the zloty to weaken.

The recent PLN strength is a result of BoJ monetary policy and expected extension (till the end of the year) of QE3 in the States. It should still give more boost to the Polish currency and push EUR/PLN pair under 4.10 (even toward 4.05). The similar situation we can expect on other crosses (USD/PLN toward 3.05-3.07; GBP/PLN – 4.70; CHF/PLN – 3.30).

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

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

Technical analysis EUR/USD: we did move above 1.3000 so it changes the overall tendency. The next resistance level is around 1.3150 (50 DMA) and in extension 1.3300 (from the last slide started). The alternative scenario (low probability now) is slide under 1.2850 (200 DMA and 50 % Fibonacci entrancement level) and extension of the bearish move toward 1.2700.

Technical analysis EUR/PLN: we got another sell signal – slide under 4.1200). The next stop shoul be around 4.06 and in extension 4.03. The alternative scenario is range trade (4.15-4.20) but only after move over 4.1600.

Technical analysis USD/PLN: the slide under 3.22-3.21 (38.2% Fibonacci retracement level and 200 DMA) generated sell signal with the target around 3.1400, which actually was almost met yesterday. It is crucial whether we break 3.1400. If yes, we can expect in the medium term a move even toward 3.04. On the other hand if the support holds, then we should expect the range trade between 3.14-3.22.

Technical analysis CHF/PLN: after sliding under 3.4000 we are in the well known territory (range 3.33-3.40). Another sell signal should be generated under 3.3300 level. If the 3.3300 support holds then the base case scenario is range trade between 3.33 and 3.40.

Technical analysis GBP/PLN: a slight weakness on the pound does not negate the short term bullish trend. The base case scenario (short-term) is still move toward 5.0000 and an attempt to break it and change the medium term outlook. On the other hand a slide under 4.89 should be a trigger to close longs and under 4.85 to open new shorts (a come back to both short and medium term bearish trend).