Daily analysis 12.08.2013

We failed to move over 1.3400 level. The correction can be extended until we see new impulses supporting the EUR/USD. September is still a base case scenario to start tapering. Rumors on Rostowski dismissal. Credit Suisse on the zloty. The local currency is close to the recent highs.

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

• 12.00 CET: Current account from Poland (survey: +220 mln euro)

Correction. September is still valid.

In the second part of Friday's session the EUR/USD clearly was not able to hold to its recent gains. It failed to successfully test 1.3400 level and we closed the week under 1.3350. Today the most traded currency pair does not seem to be eager to return near the recent highs. In the last analysis I noted that there are less reasons to continue the rally, and the NFP data which spurred the dollar weakness should already be fully priced in.

We are getting back again to the main issue in recent months – tapering. As the Wall Street Journal points out in an article “Economists See Just Enough Growth for Fed to Pull Back” there is still more than 50% percent probability that the Fed will start winding down and the and of Q3. The “WSJ” notes that the jobs situation improved significantly comparing the same period last year. Additionally the recent weak GDP readings [Q4 2012 and Q1 2013 – author's note] were mainly a result of fiscal cuts and tax rises which decreased the consumption. This headwinds should be, however, lessened when we approach the end of the year. Quite vividly painted the economic picture Neal Soss, Credit Suisse economist who told the “Journal” that “It's like you've been running a race with a sack of cement on your back. If you lighten it, or even at least stop adding to it, you can pick up the pace”. The “WSJ” also emphasis that “Despite rising interest rates, the housing market is stable after bouncing back from the bust that set off the financial crisis. Recent reports on consumer spending, manufacturing and exports all showed growth heading into third quarter of the year”.

Summarizing we are getting again closer to the base case scenario – September tapering. Not only the macro data, but also Fed's members comments suggesting that the date will hold. It should stop the greenback weakness and can decrease the odds for further EUR/USD gains.

Interesting on the zloty. Rostowski. Credit Suisse. Current account.

On early Friday afternoon the Polish popular commercial radio RMF FM reported on possible dismissal of deputy Prime Minister and Finance Minister Jacek Rostowski. It was said that a famous journalist Konrad Piasecki heard “from one of the closest Tusk's allies from Civic Platform” that if the government chief had a good successor, the dismissal would be certain. The radio didn't reveal the sources of the information. Currently it is a very slim chance that Tusk will decide to proceed such a move. He has stressed many times that he trusts Rostowski and the finance minister has a fairly solid opinion abroad. The zloty slightly lost to the euro when the news hit the wires but later it leveled off the slide.

Bloomberg cites a phone call with Bernd Berg, EM strategist from Credit Suisse. He claims that the the zloty will gain toward 4.10 per euro in 3-month period mainly on “central bank's pledge to finish rate-cutting cycle” and “new capital inflows into the zloty” in “Renewed demand for carry currencies”. Berg also emphasized that zloty is CEE's “main beneficiary of improved macro data” in euro area and Fed's QE tapering “is priced in”. What is also interesting and already could have been observed that the zloty “can decouple” from EM trends as it's “more of a domestic and euro area story”.

Summarizing the Finance Minister issue should not have any impact on the market and will not be probably discussed in a foreseeable future. The Credit Suisse theory on the zloty seem to be valid unless the Euro Zone fails to generate any growth. Today, despite some risk on trade I expect that the zloty should remain under 4.20 per euro and the current account will remain positive, because in June the local currency was still weak.

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 EUR/USD is still bullish. All Polish pairs are in bearish trends.

Technical analysis EUR/USD: the EUR/USD failed to move over 1.34 level. Currently we bounced back from the resistance, but the shorts will be preferred when we slide under 1.32 mark.

Technical analysis EUR/PLN: the EUR/PLN slided under 4.20 level which supported the bearish trend. The next target is around 4.10-4.13. Alternative scenario is a buy signal when it rises over 4.26.

Technical analysis USD/PLN:we slided under 3.15 on the USD/PLN what suggests that the next target is around 3.05. Alternative scenario is a buy signal when the pair rises over 3.22.

Technical analysis CHF/PLN: the first target was reached at 3.42. The strong support is around 3.40. If it falls under 3.40 the next target is around 3.33. Alternatively a rise over 3.48 is a buy signal.

Technical analysis GBP/PLN: the sell signal was generated after sliding under 4.97 with a target around 4.9 (already reached) and in extension even toward 4.8. Alternatively a rise over 5.00 is an indication of bulls' return.