Daily analysis 14.12.2012

Nightly preliminary PMI data from China are keeping positive sentiment on the markets. EUR/USD held steady despite equities losses on U.S session. Today markets will receive PMI data from Eurozone. Yesterday's data regarding inflation in Poland was in line with expectations. Will Poland join the Euro area – new discussion has just started.

Macro data (CET- Central European Time):

• 9.28 CET: preliminary PMI (both services and production) for Germany
• 9.58 CET: preliminary PMI (both services and production) for Eurozone
• 15.15 CET: industrial production m/m in the States

Chinese data support eurodollar. Weaker session in the States was not a problem for common currency.

Published during the Asian session PMI index not only stayed above 50 level, but also rose to 14-month high. The details of the report seem to be positive either (especially the sub index of new orders). The only set back was export orders (change form expansion to contraction). Usually both values are positively correlated. We will have to look to the final report or wait for the next month data which one is more forward looking. As usually robust info from China supports EUR/USD which is currently traded around 1.3110. Yesterday's weak session on the U.S market didn't weaken (support ?) EUR/USD. All indicies in the States were lower due to lack of agreement concerning fiscal cliff. It is still not exactly clear whether better data from the States support the common currency (risk on – positive for eurodollar but in the future can limit the QE and therefore will strengthen USD). It will be important to observe the coming data and pay attention which perspective is winning.

PMI from Europe should set the tone.

The data from Eurozone can support either support risk on or risk off mood. In case of the European data there is no doubt regarding the influence. Better then expected reading should support the common currency and can push it further to the strong resistance levels around 1.3150-1.3200. Weaker then expected report can push it downside to and push forward the test of recent hitghs.

Polish inflation fairly in line with expectations. Poland to join Eurozone soon?

Yesterday's report concerning inflation was close to the economists' survey (actual value is 2.8% y/y ; estimate was 2.9% y/y). It didn't have much impact on EUR/PLN which traded in the range of 4.09 zloty per EUR. It is getting quite interesting in case of government approach regarding Polish Euro currency adoption. Wednesday's and early Thursday's common banking supervision negotiations (more in the yesterday's analysis) gave clear message that the core of Europe is running away and without the eurozone accession Poland can be left on the side track. I think that in that way we can interpret the Prime Minister's words cited by PAP: “Decision to join the Eurozone is not a matter of month but years, however the plan has to be set now” Tusk also said that:” Poland will have to choose whether we want to be in the center of the Europe, which is around economical and financial union, or we will be the country on the peripheries”. I will not discuss if “Yes” or “No” decision is more positive overall for Poland. It is however, interesting that in recent years the Prime Minister, Finance Minister or even the governor of NBP were at least skeptical regarding the issue or built the Polish success story on having its own currency. In mid November Rostowski said that: We are not in hurry to join Eurozone, but we support all the aspects concerning the security of the Union”. Only the days ago Marek Belka (head of National Bank of Poland) commented the case” Poland to reassess euro after Southern Europe growth starts”. The words where not only quite strong (it is clear that Spain on Greece will not enjoy GDP growth in the coming future) but also with lack of logic (is the main reason for Poland to join the Eurozone should be Portugal GDP growth?). I am positive that the government and the monetary body will have substantial problems to convince the society in a few moths time frame about joining the euro. Looking at the case form the market perspective investors can start playing the issue: if or when Poland join the Zone. The “Yes” will give substantial rally on PLN, but lack of the agreement, can weaken PLN. It is quite clear that in the following months we can expect more involvement of currency investors to the case what means more volatility for the pairs with PLN.

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

Technical analysis EUR/USD: another day the technical analysis has not changed much. The target is still around 1.3150-1.3200 with extent to 1.3300. The strong support is still level around 1.3000.

Technical analysis EUR/PLN: the rebound on EUR/PLN is not suppose to exceed 4.1000 level. If EUR/PLN breaks 4.1200 (23.6% Fibonacci retracement level and 50 DMA) it will be a bullish signal. The target is still around 4.06 and 4.04.

Technical analysis USD/PLN: the trend on USD/PLN is still strong. The short term target is 3.1000 and medium term even 3.0600. The signal to close shorts will be move above over 3.1600.

Technical analysis CHF/PLN: the strong rebound case to move to levels only 0.01 PLN under the strong resistance level at 3.4000. After breaching this level the shots should be closed.