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Daily analysis 11.12.2013

11 Dec 2013 13:24|Marcin Lipka

EUR/USD goes above 1.3750. Budget agreement has not strengthened the American dollar. Another step to put the European banks situation in order. Zloty is traditionally stable in relation to euro, but the chances that we will pay less than 3.00 PLN per dollar are growing.

Most important macro data (CET). Macro data estimations are based on Bloomberg's information, unless marked otherwise.

  • Apart from the market consensus, we will publish the expectations division for some macro data. It often happens that the market reaction is biggest when the macroeconomic reports are beyond extreme prognoses range.
  • Lack of macro data, that may influence on analized currency pairs.

Higher. USA and Europe

Yesterday afternoon we had a failed attempt of disturbing the 1.3800 level on EUR/USD. It does not mean though that the increasing trend gave in to exhaustion. Coming to strong resistances can cause increase of alteration. Chances of reaching new heights are all the time bigger than probability of tendency breaking at this moment.

Getting to fundamental matters we should notice that the agreement on budget matters between the Democrats and the Republicans presented few hours ago, has not caused dollar's appreciation. As we remember in October the matter of sending few hundred thousands public administration employees on compulsory vacation has not left the headlines. It was also an argument for dollar's decreasing – worse social moods should decrease the will of consuming or investing, and because of that the economy will grow weaker, so Fed should keep the amount loosening as long as possible what in consequence caused the decrease pressure on dollar. This approach was obviously not deprived of truth, because the Federal Reserve itself suggested in their statements, that on of the arguments for unusually loose monetary policy is the budget's uncertainty. Now, when the chances of Congres accepting the agreement are significant, dollar is still not increasing. It might be another argument for varying the view on EUR/USD situation and return of the approach, that better data from USA are a signal of the American currency growing weaker because of the appetite for risk increase (as it took place through many years). Of course the matter of Fed tightening the monetary policy is still open. But also this case can be “explained” by the market. Even if the “tapering” will not being, FOMC will continue to lead more loosen money policy than the Euro Zone (especially after last Mario Draghi's suggestions that introduction of non-standard elements by EBC is still far from happening). It can be a good “leitmotif” able to keep EUR/USD at present of even higher level after the New Year.

Despite the problems in Euro Zone, the agreement on Bank's Union begins to clarify. Its aim is to prevent the situation in which financial institution's bankruptcy threatens stability and solvency of the whole country. Along with the European supervision mechanism and unified deposit guarantee system (the national ones will be still active) it will be the main element to increase the risk of system dangers. Of course the questions “who will pay for it?” still remain. In his article „Q&A: EU banking union” for „Financial Times”, Peter Spiegel writes, that the first position assumes, that the banks themselves will pay for the fund, but considering time required for gathering enough supplies (it would be just 55 billion euro through 10 years, and helping just the banks from Spain and Greece costed 80 billion and they were used immediately) it can be not enough. The other question which remains unanswered is how to ensure effectiveness of this system, before the banks start to pay for it. The French wanted to use the ESM funds for this purpose (500 billion euro) but the Germans are against this proposition. The discussion about this matter will surely last for many months, but its effects can truly put the bank system in order and prevent dramatic situations from previous years.

In conclusion, bull's sentiment on EUR/USD remains. There is a big possibility that we should see the new records on euro-dollar (above 1.3850) before Fed's next week meeting. On the other hand if it would not work and the Federal Reserve will begin “tapering” in December, we will apparently finish the current year below present levels.

Slow strengthening in relation to euro. A chance for test of 3.00 level on USD/PLN

During last few days zloty managed to gain approximately two groshens in relation to euro and we are currently on the level 4.18 per euro. More spectacular was the national currency's value increase in relation to dollar (from 3.10 to 3.03). It allowed the USD/PLN pair to reach the areas of October 2013 levels. If the boarder of 3.00 can be broken in lower direction, then zloty's relation to “buck” will be strongest since over two last years. The further appreciation of PLN to USD is very unlikely though. An explicit movment on EUR/PLN is required – getting below 4.16, and chances for that are very small at the moment.

In conclusion, EUR/PLN should stay somewhere between 4.16-4.20. We can fall a little below the boarder of 3.00 on USD/PLN, but further appreciation of zloty in relation to dollar is very unlikely at the moment.

Expected divisions of zloty pairs determined by EUR/USD rate:

EUR/USD rate 1.3650-1.3750 1.3750-1.3850 1.3550-1.3650
EUR/PLN rate 4.1600-4.2000 4.1600-4.2000 4.1600-4.2000
USD/PLN rate 3.0300-3.0700 3.0000-3.0400 3.0600-3.1000
CHF/PLN rate 3.3800-3.4200 3.3800-3.4200 3.3800-3.4200

Expected levels of GBP/PLN rate determined by GBP/USD:

GBP/USD rate 1.6250-1.6350 1.6350-1.6450 1.6150-1.6250
GBP/PLN rate 4.9700-5.0100 4.9900-5.0300 4.9500-4.9900

11 Dec 2013 13:24|Marcin Lipka

This commentary is not a recommendation within the meaning of Regulation of the Minister of Finance of 19 October 2005. It has been prepared for information purposes only and should not serve as a basis for making any investment decisions. Neither the author nor the publisher can be held liable for investment decisions made on the basis of information contained in this commentary. Copying or duplicating this report without acknowledgement of the source is prohibited.

See also:

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Daily analysis 10.12.2013

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Daily analysis 06.12.2013

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Daily analysis 05.12.2013

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