Daily analysis 13.03.2013

Another day with low volatility on EUR/USD. We are still trading around 1.3000. In contrary the euro dollar, the pound lured more attention sliding to 1.4830. The zloty is still stable despite dovish comments from MPC members and the increasing pressure form the forint.

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

• 11.00 CET: industrial production from the Euro Zone (survey minus 0.1% m/m sa, and minus 2% y/y)
• 13.30 CET: retail sales form US (survey shows both the overall reading and exluding autos at +0.5%)

Since the beginning of March EUR/USD is moving sideways around 1.3000. The pound is weaker again.

On Tuesday we were not able to initiate any stronger move on the common currency again. Around the midday the EUR/USD had tried to move higher but the rally faded a few hours later. If we look closer at the chart we can see that the consolidation trend is in palace since the start of March. The breakout scenarios, however, are still valid. If we move higher (over 1.3100) we can quickly rise toward 1.32XX. On the other hand the slide under the recent lows (around 1.2960) should spur another wave of sell off and we should expect the slide toward 1.28XX. We are still observing the positive moves on peripheries bonds (especially in Spain where the yields are at 2-year lows – 4.73% at 10-year benchmark). Today we have the results on Italian debt auction (first long-term bond placement since the Fitch downgrade). If we see a high debt-to-cover ration on the 15-year paper (results at around 11.00 CET) and a positive surprise from the industrial production then it should support the common currency. There is still an interesting situation on the pound (especially GBP/USD). After yesterday's weak data on industrial production (minus 1.1% m/m vs survey +0.1% m/m and minus 2.9% vs estimates around minus 1.1%) we dived toward 1.4830 (lowest levels since June 2010). The analyst approach to the cable is still bearish (what does not rule out the short-term rebounds, of course), and shows that there is still some room to the bottom. A Bloomberg interview with U.K. based Kemes Capital (part of the Dutch insurer Aegon) confirmes a negative sentiment to the sterling in the long run. The found which manages around 29 billion pounds of fixed income assets has been recently investing in U.S treasures (in USD) without hedging the positions on the currency markets betting that GBP/USD slides further and the firm will make additional profits after exchanging the US holdings to the sterling in the future.

The zloty is still stable.

It looks that the Polish currency is pretty resilient to the Hungarian turmoil (where EUR/HUF is approaching a new yearly highs) and does not care quite dovish opinions form the MPC members. Yesterday evening professor Elżbieta Chojna-Duch told TVN CNBC that another cuts are possible this year and the real interest rate is still restrictive. Also on Tuesday NBP chief Marek Belka told “Obserwatorfinansowy.pl” that he “does not exclude more easing” It does not mean, of course, that we will see the cut in the near future (within 2-month period) but the probability of another easing is increasing and we can see the benchmark at 3% even before the July NBP inflation estimation. It should put pressure on the zloty in the medium term. On the other hand we still have to remember the the Polish currency is still supported by the U.S equity bull market and we have to wait for a stronger correction on stocks to see a zloty weakening toward 4.2000 per euro.

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

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

Technical analysis EUR/USD: the technical analysis does not generate any new signals. The bearish trend is still valid with the target around 1.2870-1.2840 (head and shoulder target, 50% Fibonacci retarcement level and 200 DMA). The comeback to the bullish trend is possible after moving above 1.3300 (currently low probability).

Technical analysis EUR/PLN: the base case scenario is the range trend on EUR/PLN (between 4.12 and 4.17-4.1800). It is still worth to remember about 50 DMA crossing 200 DMA (golden cross) which can generate the buy signal when the pair jumps over 4.1900. On the other hand the slide under 4.1200 should results in the move toward 4.08.

Technical analysis USD/PLN: the base case scenario is still a move toward 3.24-3.27 (between 200 DMA and 50% Fibonacci retracement level). The comeback to the bearish trend is possible after sliding under 3.1200 (50 DMA).

Technical analysis CHF/PLN: the pair looks pretty stable now. Trading between 3.33-3.41 is neutral for the CHF/PLN and it is also the base case scenario. Breaking up the range trend should generate the buy signal and sliding under 3.3300 should attract bears.

Technical analysis GBP/PLN: the bearish trend on GBP seems to be strong and any rebound not exceeding 4.87-4.90 (23.6% Fibonacci retracement level and 50 DMA) should be used to open new shorts. The pivot point is around 5.00. Analyzing 5-year chart we can see that the target of the recent move can be set around 4.5000. In the short term the target is to breaking support on 4.7000 and the resistance is on downtrend line (4.7800).