Daily analysis 14.03.2013

Strong data form the U.S and weak from the Euro Zone pushed the EUR/USD below the recent lows – 1.2925. On the pound we are currently observing a correction move. The zloty is stable on EUR/PLN. More volatility is visible on GBP/USD and USD/PLN. Please note the inflation report from Poland today.

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

• Start of the EU summit – around 17.00 CET
• 13.30 CET: U.S jobless claims (survey 350k)
• 13.30 CET: PPI from the States (survey: 0.7% m/m and 1.8% y/y)
• 14.00 CET: Polish CPI (survey 0.2% m/m and 1.5% y/y)

The breakout form the range trade.

Yesterday in the morning EUR/USD failed to strengthen. Just before the results of Italian debt auction (which rather wasn't successful – the debt-to-cover ratio decreased from 1.37 to 1.28) and Euro Zone eco data (also worse then anticipated) the common currency decreased to 1.3000. The stronger move came after better-then-expected retail sales from the U.S. The global dollar rise moved the EUR/USD lower toward 1.2920. The further slide of the shared currency is quite probable and the events supporting the greenback (macro data, speculations on QE ending, and rate cuts in the UE) should be used by bears as a reason to sell the euro. The only “hope” for the bulls is the FOMC meeting next week. The FED can issues the economic projection which is more dovish then currently expected or Ben Bernanke's statement could be less favorable for the dollar then investors anticipate (having in mind the last “Minutes”). The start of today's EU summit will not suppose to change the market sentiment. The single market leaders will probably give more time to France, Spain or Portugal to deal with there budget deficits. In the short term it will not suppose to affect their economy or investors perception.

Correction on the pound

The rebound on GBP/USD (and GBP/PLN) is probably only a correction. The situation on the sterling was nicely summarized by Jane Foley, senior currency strategies form Rabaobank. She told Bloomberg that “there is some position adjustment, people trying to pick the bottom because we have gone a long way and a lot of bad news is in the price. I would still favor selling the rallies in sterling”. The similar opinion was expressed by Giordano Lombardo, chief investment officer at Pioneer Investments. He claims that “ The pound is going to be structurally weaker and the reason is the situation of the U.K economy which is lacking grwoth and has a monetary policy which is not helping the pound. A bit different different view is presented by Geoffrey Yu, a senior currency strategies at UBS. He thinks that investors “are to pessimistic on the U.K currency” but he still “sees 1.41 USD and 95 pence per euro as the lows”. Regarding the recent correlations that values will give around 4.5000 PLN per GBP.

Stable euro. CPI from Poland.

Changes on the zloty are minimal recently. EUR/PLN moves around 4.1400 rate. Some volatility can be added by today's CPI report. Lower then expected reading should weaken the PLN (by not more then 0.02 PLN). It is also worth to note the yesterday's interview with professor Zielińska-Głębocka on TVN CNBC. The MPC member said that the recent rate cut to 3.25% is “that what was realistic outcome of negotiations”. She also added that 3.25 is a “short-term wait-and-see”. The opinion supports the market view that we should not expect another cuts in the recent for at least 2 months, but the decrease has not been ruled out in the future (even possible before the July's central bank inflation projection).

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

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

Technical analysis EUR/USD: yesterday's slide toward 1.2920 brings us closer to the medium term target around 1.2870-1.2840 (head and shoulder target, 50% Fibonacci retarcement level and 200 DMA). The signal was generated when we broke 1.3300 in mid February.

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 3.23-3.27 (between 200 DMA and 50% Fibonacci retracement level). The comeback to the downtrend is possible after sliding under 3.1300 (low probability).

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 mid term situation on the pound has not changed and the further downside move is possible toward 4.5000. In the short term we have, however an chance to generate the upside move after breaking the downtrend line (currently around 4.77). The range of such a move should be around 4.86-4.90 (between 50 DMA and 23.6% Fibonacci retracement level). If the pound fails to break 4.7700 the the chance break down from the triangle is rising and successful test of 4.7000 is possible.