Daily analysis 13.05.2013

The USD/JPY rebound above 100 level (currently at 101.5) still weights on the other pairs and is pushing EUR/USD lower. The dollar is additionally supported by speculations of earlier QE withdrawal (WSJ). The polish zloty can be under pressure from risk off trade and Tuesday's Flash Q1 flash GDP reading.

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

• 14.30 CET: Retail sales from the States (survey: minus 0.2% m/m and minus 0.3% m/m excluding autos

Global dollar strength. Speculations on QE withdrawal.

The greenback seems to be fueled with the recent gains and has a clear appetite form more. It currently deals with its Australian counterpart, what results in testing a key technical and psychological 1.0000 level. The “chart pressure” is also put on the EUR/USD graph. Currently we are in a key 1.30-1.2950 range, but the market is just looking for a hint to push the pair lower. The impulse can come any moment especially that we are resuming a discussion on withdrawal scenario from the U.S asset purchase program.

There is quite a complex article in the Journal („Fed Maps Exit From Stimulus”) written by Jon Hilsenrath. He cites many Federal Reserve members, recent changes in the FOMC statement (on possibility to increase on decrease the QE regarding the economy condition), and an exit strategy which is suppose to begin with declining asset purchase at the first stage. The author notes that since the recent easing operation the unemployment dropped from 8.1% to 7.5% and the average NFP reading is 193k (which is close to the 200k target; seen by some analysts as a trigger point to reduce the easing operation).

After the last NFP data I have been suggesting that the discussion on the QE withdrawal should resume. The market tried to shrug off the data at the beginning of the previous week, but it turned out to be unsuccessful. Currently it can be pretty hard to the EUR/USD to come back around 1.3200 . Much more possible is a slide toward 1.2800 and test of the March lows.

Flash Polish GDP tomorrow. Chojna-Duch and Glapinski on rates

The Polish currency after Friday's weakness has been trading around 4.1500 since the morning. Its condition should be shaped by EUR/USD performance, overall market sentiment and interest rate decisions. In the morning Bloomberg cited two MPC members – professor Adam Glapiński and professor Chojna-Duch. Glapiński says that “Personally I'm very cautious and conservative in this situation, but I think that a rate cut in June isn't excluded” (a bit more dovish then expected.). On the other hand Chojna-Duch “sees Polish CPI at about 1% through the end of 2013 and real interest rate to stay around 2%”. Adding two values we have 3% so it seems that the current refi is seen by her as a proper level. So it is more hawkish taking into the account her dovish approach to the monetary policy.

Tomorrow we have a preliminary GDP reading from Polish economy. Analysts estimate that the y/y reading should be around 0.7% and on the quarterly basis at 0.2%. I would focus this time on the quarterly data, because it is quite close to 0.0 mark. If we get a negative GDP q/q then we can see a further pressure on the PLN to around 4.17-4.18.

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:

We are trading below 1.3000 on the EUR/USD, so it is more probable that the slide will continue to 1.2800 then we rebound toward 1.32000. There has also been a change on the USD/PLN technical situation. It targets now 3.27.

Technical analysis EUR/USD: a fall under 1.2950 should support bears and target the EUR/USD at 1.2800. The move above 1.3200 seems to be less possible currently.

Technical analysis EUR/PLN: recent EUR/PLN changes broadened the range trade (4.12-4.20). Breaking 4.1200 to the downside (200 DMA) should push the pair toward 4.10 and in extension to 4.05. A move above 4.2000 seems to be currently least probable.

Technical analysis USD/PLN: the pair has moved over 3.2000 which has generated a buy signal with the target of 3.2700. The shorts should be again opened when the pair slides under 3.15-3.14.

Technical analysis CHF/PLN: the CHF/PLN is trying to fall under 3.3300 (lower bound of the range trade). If successful then we should expect a slide toward 3.27.

Technical analysis GBP/PLN: the short term target for the pair is a move toward 5.0000 and an attempt to change the mid term trend to rising. The breaking above 5.0000 should initiate the move toward 5.1000. The alternative scenario is a move under 4.85 where bears should take the lead.