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Daily analysis 13.09.2013

13 Sept 2013 13:22|Marcin Lipka

We are still close to 1.30 level on the EUR/USD. Psychological approach to the Federal Reserve decision on tapering. Another difficult choice for Obama – new Fed's chief nomination. The Polish zloty hold to its recent gains and can be prone for further bullish moves.

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

  • 14.00 CET: CPI in Poland (survey 1.1% y/y and minus 0.3% m/m)
  • 14.30 CET: Retail sales from the US (+0.5%; excluding autos +0.3)
  • 14.30 CET: PPI from the States (+0.2%)
  • 15.55 CET: University of Michigan Confidence preliminary reading (survey: 82 points)

Why Fed begins the tapering in September. Another difficult decision for Obama – Summers vs Yellen

Yesterday the weekly jobless claims spurred some confusion on the markets. Investors expected a number around 330k, whereas the Labor Department reported 292k filings. However, it turned out that the data were not presented accurately. As Bloomberg reports the number “doesn’t signal a change in job-market conditions because most of it was caused by computer-network conversions in the two states, according to a Labor Department spokesman”. The dollar slightly strengthen after the claims hit the wires but later the EUR/USD returned to around 1.33 level.

We are getting closer to the major Federal Reserve decision whether to start winding-down the asset purchase operation at the next meeting. In that context it is worth to listen “WSJ” interview prepared by Erin McCarthy and Vincent Cignarella with Sassan Ghahramani of SGH Macro Advisors (http://blogs.wsj.com/economics/2013/09/12/fed-tapering-may-not-equal-dollar-strength/ ). During the discussion it was a broad consensus that $10-$15 billion tapering is already priced in (10 billion should slightly weaken the dollar and put pressure on yields; 20 billion will support the greenback). However, at one point the experts focused on the psychological aspect of the Fed's decision. They claim that “waiting” is not a “costless option”. The market is prepared for scaling back the QE next week. On the other hand if Fed decides not to taper the Committee will send a signal that it is waiting for the better economic numbers. But what happens if the future data falls short of expectations? How the Federal Reserve is going to start reducing the asset purchase during worse of similar data? This can also be a reason to begin the operation next Wednesday.

President Obama is facing another difficult decision – nomination of the next Fed's chief. Bernanke's term is ending in January 2014 and on there are two major candidates – former Treasury Secretary Lawrence Summers and Federal Reserve vice chairwoman Janet Yellen. The latter is considered as a dovish member who will continue the current policy (should be also dovish for the dollar). On the other hand Summers is a “question mark” with rather unclear view toward the QE and monetary policy. The press and most of the experts claim that Yellen is a better candidate to run the Fed. However, the White House, is leaning toward the Summers nomination. After the president chooses a candidate the Senate Banking Committee and all senators during the voting process will have to accept the nominee. And this is a place where the trouble starts. Several weeks ago some democratic senators (around 1/3) sent a letter to Obama to support Ms. Yellen. Additionally the Journal reports today („Summers for the Fed? Senior GOP Senator Says No”) that second most important Republican senator John Cornyn is also against Summers. So, Obama is facing another hard choice (after Syria) and in my opinion all the troubles with Damascus can push him toward an easier option this time.

Summarizing the current market approach is suggesting that we can move significantly above 1.33 level. It can happen either before the Fed's meeting (depending whether market convince itself of “fractional” tapering) or after the Wednesday's relatively dovish decision.

Strong zloty is not even eager to correct the recent gains

The zloty is still taking advantage of positive global sentiment. It is also support by relative optimistic approach of foreign investors toward the Polish currency. It can be confirmed by ignoring the pension reform issues and political problems of the current parliamentary coalition. The market still expects that the current government will last till 2015.

Additionally it is possible that the demand for the zloty can be extended. If the Fed does not scare the market we will probably witness some capital flow to the battered emerging markets. The Polish currency wasn't sold during the latest EM turmoil but it can still take advantage of the capital return (all in hands of the Federal Reserve).

Summarizing in the following weeks we should still expect the stronger zloty. On the other hand today we will probably stay in the range of 4.20-4.23 on the EUR/PLN and 3.40 PLN per the Swiss franc.

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

Range EUR/USD 1.3150-1.3250 1.3250-1.3350 1.3050-1.3150
Range EUR/PLN 4.2000-4.2400 4.2000-4.2400 4.2000-4.2400
Range USD/PLN 3.1900-3.2300 3.1600-3.2000 3.2300-3.2700
Range CHF/PLN 3.4000-3.4400 3.4000-3.4400 3.4000-3.4400

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

Range GBP/USD 1.5650-1.5750 1.5750-1.5850 1.5550-1.5650
Range GBP/PLN 5.0100-5.0500 5.0300-5.0700 4.9900-5.0300

The comeback over 1.3300 will negate the last week's sell signal. Mix on the zloty pairs.

Technical analysis EUR/USD: if the EUR/USD rises above 1.3300 it should generates the buy signal with the first target at 1.3400 and second toward 1.3650. Staying under 1.3300 is still bearish.


Technical analysis EUR/PLN: the fall under 4.26 generates a signal toward a range trade between 4.22-4.26. Sliding under 4.22 prefers the bearish positions toward 4.18.


Technical analysis USD/PLN: the fall under 3.22 negates the bullish trend. The first target is around 3.18 and second 3.15.


Technical analysis CHF/PLN: the comeback under 3.43 negates the buy signal. Now the base case scenario is a range trade between 3.40-3.45. Sliding under 3.40 generates a sell signal with target at 3.33.


Technical analysis GBP/PLN: on the pound there is still bullish trend. Only a slide under 5.00 generates a sell signal with a target at 4.93.


13 Sept 2013 13:22|Marcin Lipka

This commentary is not a recommendation within the meaning of Regulation of the Minister of Finance of 19 October 2005. It has been prepared for information purposes only and should not serve as a basis for making any investment decisions. Neither the author nor the publisher can be held liable for investment decisions made on the basis of information contained in this commentary. Copying or duplicating this report without acknowledgement of the source is prohibited.

See also:

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Daily analysis 12.09.2013

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