Daily analysis 12.04.2013

The common currency has been trading around 1.3100 to the dollar. Decision on extending the loan to Ireland and Portugal. Another estimates on losses by Cyprus depositors. Macro data from U.S and Europe. Mediocre results of the Polish debt auction and correction move on the zloty.

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

• 11.00 CET: Industrial production from the Euro-Zone (survey +0.2% m/m)
• 14.30 CET: retail sales form the States (the overall data and excluding autos is suppose to stay unchanged – 0.0%
• 15.55 CET: preliminary reading of University of Michigan index (survey: 78.5 points)

EUR/USD is still around 1.3100. Data form the States. Cyprus. Eurogroup meeting

The global situation on currencies is still under influence of central banks and its asset purchase policy (U.S and Japan). After the recent “Minutes” form the Federal Reserve (which clearly moves forward reducing/ending the QE3 if the job market improves) any data regarding the employment will be closely watched. Readings showing more hiring should boos the dollar, and data confirming more weakness will put pressure on the USD and push EUR/USD higher. Yesterday we received the report on jobless claims in the States. The data, which is much less significant then the monthly NFP reading, turned to be better then estimates (the claims were lower by around 15k then in a survey; 346k vs 360k). It caused a slight downside pressure on the EUR/USD (around 30 pips), but then the common currency returned above 1.3100 mark. Cited by the Financial Times, Steven Ricchiuto, chief economist at Mizuho Securities USA claims that “The four week moving average is at 358000 which is still consistent with monthly payroll gain of 175000 on average”. It is a bit lower then the 200k mark which is frequently repeated as a level when the QE3 is suppose to reduced/and eventually stopped. However if we look at the NFP data form the last two years the payrolls reading tend to significantly decrease during Spring/Summer time (http://www.tradingeconomics.com/united-states/non-farm-payrolls ). If the history repeats in 2013 we can expect the extension of the easing (event till the 4th quarter).

From the European backyard we have the Finance Ministers meeting in Dublin. The market speculates that Eurogroup should extend the loan to Ireland and Portugal (already partly in the prices especially that on Thursday the Irish 10-year bonds were at the lowest yields from 2006). During the meeting there will be also a discussion on the Cyprus case, which, according to rumors, is going to be short of few billion euros on its bailout (due to more severe crisis). Europe does not want to increase its load so the funds will probably need to be found by Nicosia government or more possibly in the bankrupt banks. As The Wall Street Journal reports in an article “Cyprus Extends Capital Controls, Eases Limits” the haircut on customers with deposits over 100 k in Laiki Bank will be at least 80% and in Bank of Cyprus up to 60%. As we probably remember the first estimates was around half of the current value.

Today we will be probably trading around 1.3100 mark and try to price in any info coming from the Eurogroup. We should also remember about the afternoon data form the States and Monday early morning Chinese GDP report (4 am CET).

Correction on the zloty, average debt auction, budget correction, Ministry of Economy estimates March inflation at 1.0%

In line with the Thursday analysis we had a correction move on the zloty which was extended by unimpressive debt auction. The yield was, of course, the lowest in history on the 10-year benchmark (due to significant slide on the secondary market), but the debt-to-cover ration was at 1.27 (previously at 1.35) and there was no supplementary auction. Currently it looks like 3.5% yield does not look like a good starting point for the further gains (on price).

As the Polish Press Agency (PAP) reports deputy finance minister Wojciech Kowalczyk says that the ministry is heading toward the correction of the GDP growth (from 2.2% to 1.5%) and the budget correction. The information is rather expected by investors and should not put much pressure on the zloty in the medium term (official announcement is expected in May).

The PAP also informs that according to Ministry of Economy the March inflation is going to fall to 1.0% (y/y). The official data is going to be released on Monday and the Bloomberg forecast is at 1.1%. If the reading is under 1.0% the zloty can weaken (up to 0.02 PLN).

Today the Polish currency should stay around 4.12 per Euro (plus/minus 0.01PLN). More volatility can be expected during the Monday inflation data.

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.

There has been no major change on both EUR/USD and Polish pairs. There is a higher probability for the further rise on the EUR/USD and more zloty strength to the foreign currencies.

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).