Daily analysis 11.09.2013

The EUR/USD stabilizes around 1.3250 trying to price-in a decreasing probability of intervention in Syria and the next week Federal Reserve decision. The Polish zloty, in line with the local debt market, have forgotten the pension reform outcomes and is focusing on the global sentiment. Today the current account data.

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

• 14.00 CET: Polish current account balance (survey + 60m euro)

Syria and NFP

Yesterday we had US president speech on Syria. Obama's “address to the nation” focused mainly on describing his stance toward the Damascus regime. However, between the lines we could clearly read some sings of diplomatic defeats. He called talks with president Putin as “constructive”, “asked the leaders of Congress to postpone the vote to authorize the use of force...” and said that “I am sending Secretary of State John Kerry to meet his Russian counterpart”. Not going further into the White House image repercussions and focusing on the markets we can easily see that the tensions has eased. Lower probability of military action in Syria pushed both stocks and more risky currencies higher. On the other hand the crude oil slumped showing that the overall Middle East nervousness significantly decreased. The “risk-on” trade also resulted in both stronger EUR/USD and EUR/CHF which have been traded around 1.3250 and 1.2400 respectively.

Besides geopolitical issues the EUR/USD is also focused on the next Fed meeting. Much weaker-than-expected NPF published last Friday (especially the 70k downward revision) caused that the 6-month average dropped to 160k. It does not rule out the September tapering, but it can decrease its scale only by $10bn. If the Federal Reserve starts winding-down the asset purchase using really small steps, than it will not probably increase the reduction pace till the end of the operation. Ben Bernanke has suggested that he plans to end the asset purchase in mid 2014. Making an assumption that the reduction at every meeting will be only $10bn, the dollar should remain under significant pressure (in March 2014 we will still have $45bn of QE on the monthly basis).

Despite that all published data on Thursday were bullish the EUR/USD didn't slump that significantly. The EUR/USD weakness was visible, but some investors were still reluctant to make the final decision before the key job's data. However, taking into the account the recent macro reports, the NFP would have to be significantly lower (at least 30k for this month and another 30 in the revisions) to give substantial doubts on the September tapering. On the other hand if the market reaction is fairly muted on 14.30 CET data, then we should expect that most of tapering is already priced in.

Summarizing, the increasing risk-appetite trade can still keep the EUR/USD in a bullish mood and even push it above 1.3300. The dollar can also be under pressure from NPF data which not only decreases odds for the September tapering (which was mostly priced-in), but also opens door to quite benign winding-down operation.

Global sentiment boosting the zloty

The behavior of the polish assets confirms a well know proverb “investors have good but short memory”. Just few days ago the EUR/PLN was above 4.30 and the 10-year bonds yields were knocking to 5.00%. Today the situation is opposite - the euro is worth less than 4.24 PLN and 10-year benchmark dropped under 4.7%. There are two major reasons behind the move – firstly much better global sentiment and secondly quite neutral stance form rating agencies which claim that the pension overhaul will not affect Polish credit worthiness.

Today we are having the current account balance. The market expects a slight C/A surplus. Investors has recently become quite sensitive to the trade data, which is clearly seen in Turkey or India. When a large C/A deficit is persistent and there is a lack of portfolio/FDI investments it put quite a pressure on foreign reserves.

Summarizing the zloty came back to the well known range – 4.22-4.26. These levels should be the base case scenario for the following hours.

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

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

The comeback over 1.3300 will negate the last week's sell signal. Mix on the zloty pairs.

Technical analysis EUR/USD: if the EUR/USD rises above 1.3300 it should generates the buy signal with the first target at 1.3400 and second toward 1.3650. Staying under 1.3300 is still bearish.

Technical analysis EUR/PLN: the fall under 4.26 generates a signal toward a range trade between 4.22-4.26. Sliding under 4.22 prefers the bearish positions toward 4.18.

Technical analysis USD/PLN: the fall under 3.22 negates the bullish trend. The first target is around 3.18 and second 3.15.

Technical analysis CHF/PLN: the comeback under 3.43 negates the buy signal. Now the base case scenario is a range trade between 3.40-3.45. Sliding under 3.40 generates a sell signal with target at 3.33.

Technical analysis GBP/PLN: on the pound there is still bullish trend. Only a slide under 5.00 generates a sell signal with a target at 4.93.