Daily analysis 12.11.2013

Further consequences of last week events – the ECB rate cuts and much-better-than estimated NFP data from the US. Thursday's Janet Yellen hearings before the Senate Banking Committee. The EUR/PLN rose above 4.20 level during a thin, holiday trading. Macro data from Poland. NBP inflation report.

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

• 14.00 CET: BOP from Poland (deficit on current account: 719 million euro; trade balance: surplus 264 million euro).

The consequences. Yellen

On Monday we managed to return over 1.3400 on the EUR/USD, but today at the beginning of the European session we are again under that round number. The current euro-dollar value is a direct consequence of the ECB rate cut and much-better-than estimated job's report from the US. The European Central Bank decision can put the pressure on the euro for a longer time and also the dollar should take advantage from earlier-than-expected tapering.

The Bureau of Labor Statistics published really solid NFP data on Friday (+204 new jobs were created in the economy vs 120k estimated). The “government shutdown” effect was not visible in the reading. Moreover, the Payrolls were revised upward both for August and September in the sum of 60k. It is not a surprise that such solid data brought the expectations of tapering back from March to December. In line with the currency market (dollar strength) we had also a rapid reaction on Treasuries. The yields on 10-year US benchmark soared 13 bps to 2.75% (levels not seen since the FOMC decided not to taper in September). Investors should closely watch the US bond market and than evaluate the probability of earlier tapering.

On Thursday Janet Yellen hearing before Senate Banking Committee is scheduled to begin. It is a standard procedure for any Federal Reserve chairperson. Investors will be mainly interested in any remarks on asset purchase operation. If it turns out that Yellen is more eager to extend the QE further into 2014 than we can see a dollar depreciation.

Summarizing, we still have a full month till one of the most important Federal Reserve meeting. Currently the expectations on tapering are moving back to December, but the next month tapering is not yet fully priced in. We alos still have to wait for more data and for more Fed' officials opinions to evaluate the probability of tapering as early as in December. Today the EUR/USD should remain between 1.3350 and Monday's highs slightly above 1.3400 level.

Above 4.20. The data. NBP inflation report

Due to national holiday in Poland the trading on currency market was rather thin on Monday. It helped the EUR/PLN bulls to push the rate above 4.20 level. However, the direct cause of weaker zloty was US Payroll data which are bringing the December tapering into the discussion. Another negative elements for the Polish zloty (with much lower impact) were Moody's threats to cut Hungarian rating and intervention on Czech coruna.

We have a substantial amount of economic data from Poland. Today investors will get the BOP reading (lower current account deficit and higher trade surplus should be positive for the PLN), and on Thursday both GDP flash estimate and CPI.

Finally at the end quite upbeat news from NBP – Central Bank inflation and economic projections report - http://www.nbp.pl/en/publikacje/raport_inflacja/iraport_november2013.pdf . Comparing to the July data all major macroeconomic indicators increased significantly. The 2014 GDP is suppose to top 2.9%, the unemployment will be lower, investments are expected to rise and the trade looks more balanced. If the forecasted rebound turns out to be true we can expect that the EUR/PLN may slide toward 4.00 in two-three quarters (no matter whether the Federal Reserve decides to start tapering in December or not).

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

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