Daily analysis 11.07.2013

A spike of volatility after the 'minutes' was transferred into the EUR/USD jump during Bernanke Q&A and then was followed by a surge between U.S and Asian session. Lots of “communication” from the FOMC. The zloty hasn't believed into the rally and remained fairly unchanged to the euro.

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

• 14.30 CET: weekly jobless claims from the States

A real currency market. Fed's communication

Yesterday we were observing how the currency market can behave and how the moves are generated. It was clear that both 'minutes' and Bernanke speech will be key events for the markets. The FOMC discussion wasn't that different to the investors expectations. The Fed stressed that it needs a clear sings form the economy to start the tapering. As Robing Harding form the Financial Times explains (“Fed's buying slowdown hangs in balance”) that several members (voting) of the Committee (usually three or four out of 12) “thought asset purchase should slow down soon, but many (the rest form 12) wanted to see a further improvement in the jobs first”. It means that currently most of the members still support the easing. However, the Fed didn't have the most recent jobs data which showed 100k more payrolls (70k upside revision in previous months and 30k more then expected in the current period). Coming back to the “FT” article, the author also notes that out of the whole FOMC (19 participants) “about half” would like to end the QE by the year end (which is a dollar bullish sign). Overall the “minutes”, were relatively neutral (maybe slightly dovish) and the market reacted fairly calm (around 30 pips after the issuance).

Two hours later we had Ben Bernake speech in an anniversary of 100 years of monetary policy. The meeting with famous economists was pretty relaxed (lots of laughing and etc.), but the market exploited two issues during a Q&A part. Firstly Bernanke suggested that monetary policy will be accommodative in a foreseeable future. Secondly he claims that the economy is still far form the dual Fed mandate (maximum employment and interest rates around 2%) and 6.5% unemployment target is a threshold not a trigger (the rates will not be automatically raised when we move under that level). The statement, in contrast to the minutes, includes all the current data, so the market felt much more comfortable and jumped 100 pips to around 1.30.

It was, however, only the beginning. During a low liquidity period (between 23.00 CET and 01.00 CET) the EUR/USD added another 200 pips and briefly moved over 1.3200 level. It was a clear short-squeeze game and quite successful one.

At the end I would like to come back into the “minutes”. The FOMC seems to be quite concerned with the market complains regarding the communication. The Committee heavily discussed the subject and devoted the whole paragraph to the communication (the word was “communication” used 10 times whereas in the previous minutes only once). What is more interesting Members were discussing whether it is a good idea to issue forward guidance regarding the QE (similar idea to the “low interest rates promise” – less then 6.5% unemployment and inflation expectations under 2.5%). Finally they decided that “possible disadvantages of such an approach, including that such forward guidance might inappropriately constrain the Committee's decisionmaking”.

Summarizing the move after Ben Bernanke statements was pretty overdone, but it should not be neglected. In a favorable conditions we can move even higher. In the medium-term, however, it hasn't changed much. The Fed is still getting closer to the QE tapering (the base date is still September). Both Ben Bernanke and the Committee are pretty concerned regarding the market reactions (it was visible in the minutes and during the speech where he tried to sound much more dovish than last time). The rest of the week should be much calmer and the EUR/USD will probably remain above 1.30.

The zloty does not trust the EUR/USD surge.

During the morning hours the EUR/PLN tried to slide under 4.30 level but the attempt was unsuccessful. Market participants on the zloty do not trust the sentiment improvement (stocks rise, falling yields, EUR/USD and commodities surge). A bit more confidence was seen on the government bonds where 10-year yields briefly dropped under 3.8% but the slide was short-lived. However, if the positive sentiment lasts longer, the zloty will catch up and should slide under 4.30 (probably next week).

Summarizing the global players are not currently interested in the zloty assets. The market is probably waiting for further slide on 10-year treasuries (at least toward 2.4%). If it happens (combined with EUR/USD remaining 1.30), then we should also see a down pressure on the EUR/PLN with a dive under 4.30.

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

The technical situation on the EUR/USD has changed. The bulls are in charge now. The USD/PLN generated a sell signal. Other pairs remain in their trends.

Technicznie EUR/USD: the EUR/USD moved quite substantially yesterday. It broke many resistance levels and stopped around 1.32. The upside trend dominates now with target at 1.3200 and support around 1.3070. The next support is around 1.2950. If we fall under that level is should generate a sell signal with a target around 1.28

Technicznie EUR/PLN: the EUR/PLN remains in the bullish trend. The first target is 4.35 and the second 4.40.

Technicznie USD/PLN: a fall under 3.28 was a sell signal. The USD/PLN target is 3.18-3.14 now. A comeback above 3.34 again favors bulls.

Technicznie CHF/PLN: the sell signal was generated after falling under 3.48. The target is 3.42 now. Alternatively the rise over 3.52 should be bullish.

Technicznie GBP/PLN: we were close to generate the sell signal (falling under 4.97). The pair, however, rebounded from 50 and 200 DMAs. Therefore it should retest the 5.10 highs. Alternatively a fall under 4.97 should generate a sell signal.