Daily analysis 10.05.2013

The move on USD/JPY over 100 mark significantly changed the situation on other currency pairs. Some signs form Germany on more flexibility on austerity. The Polish zloty is weaker on debt market correction.

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

• No major economic data which will impact the global currency market

Yen weakness in an “old way”. Scheauble on more bening austerity policy

Yesterday we had quite an interesting day on the currency market. Around 19.00 CET the dollar started getting stronger to the yen and after an hour we moved from 99.30 to 100 yen per USD. At that moment the move accelerated and in the next 10 minutes we soared to 100.60 on the USD/JPY (currently around 101). How in details this groundbreaking jump was taking place is written by Vincent Cignarella on Moneybeat (part of The Wall Street Journal - http://blogs.wsj.com/moneybeat/2013/05/09/yen-hits-century-mark-the-old-fashion-way/ ). The author claims that yen weakness was not a reason of any special information or some statement from any official. “It was done in an old-fashioned way” Cignarella writes. A trader around 19.00 CET “ bid the dollar higher by 10 pips at a time” and then was giving up a bit resulting in a few pips correction.  “At each break when the buyer stepped back in, sellers became emboldened, thinking the buy order was filled. They would then move in to sell dollars aggressively in an attempt to push the dollar/yen pair lower, only to be met once again by a tenacious buyer” Cignarella precisely explains. The similar transactions were repeated many times until the pair hit 100 mark. Then the stop losses were triggered and in another 10 minutes USD/JPY jumped another 60 pips (the highest level in 4 years). About fundamental reasons of long-term yen weakness I did write many times. Just after plans on expansionary monetary and fiscal policy were revealed I pointed out that 100 level can be “only a short stop” in the USD/JPY surge (/eng/news/daily-analysis/daily-analysis-11.01.2013 ). The dollar strength to the yen was also interesting regarding the recent correlations. Usually when yen was depreciating to the USD the euro was gaining ground to the the greenback. This time was opposite. The EUR/USD slided toward 1.3000 paring all the recent gains and reducing significantly the odds for 1.33 test.

Getting back to Europe it is worth the note the recent remarks form Wolfgan Schaeuble. According to Blooomberg during a meeting before G7 meeting German finance minister “signaled support for easier European austerity”. He also said that Germany supported European Commission to give more time to deal with France and Spanish budget deficits. I similar context, but in more aggressive tone, sounds French finance minister who said a few days ago that “The end of the dogma of austerity” as a single way to deal with the debt issues is over.

I don't expect that Europe will go the QE or fiscal expansion path, but a kind of less pressure on the austerity and, more importantly, the common commitment to fight the crisis increase the probability for success. Another element which should be supportive in the long-term will be a Banking Union introduction and some credit friendly programs for SMEs.

The zloty is slightly weaker in line with bonds

Both the PLN and government bonds are correcting their Wednesday and Thursday's gains. Yesterday we had a successful debt auction, but I would not connect it with the real strength of the Polish economy. It is actually, kind of, opposite way. Low inflation expectations (which is a part of the slowdown) is luring the capital to the bond market to take an advantage of future lower interest rates and therefore higher bond prices. The similar situation is all over the emerging and developed world even with the junk papers. Of course, in the longer run when the “hot money” will be moving out, the countries with stronger financial standing (including Poland) should be more resilient then economies with lower rating.

The zloty should be trading around 4.14 till the end of the day. On Wednesday and on Thursday we have inflation data (CPI and core respectively). The data will be closely watched both by the investors and the MPC.

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

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

Overall technical situation on the analyzed pairs:

We have another switch on the EUR/USD. We moved again to the 1.30 support and the odds for bears significantly increased. If we move under 1.30-1.2950 then the chances for the slide toward 1.2800 and to 1.2700 in extension are pretty high. Regarding the Polish pairs we have an interesting situation on CHF/PLN which can move under 3.33 mark and generate a strong sell signal.

Technical analysis EUR/USD: a fall under 1.2950 should support bears and target the EUR/USD at 1.2800. The move above 1.3200 seems to be less possible currently.

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 CHF/PLN is trying to fall under 3.3300 (lower bound of the range trade). If successful then we should expect a slide toward 3.27.

Technical analysis GBP/PLN: the short term target for the pair is a move toward 5.0000 and an attempt to change the mid term trend to rising. The breaking above 5.0000 should initiate the move toward 5.1000. The alternative scenario is a move under 4.85 where bears should take the lead.