Daily analysis 16.04.2013

A significant slide on gold and equities didn't spur a large sell off on EUR/USD. Today the market should focus on macro data. The pound is still around 1.5300. The zloty is also fairly stable despite a turmoil on capital markets.

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

• 10.30 CET: CPI form the U.K (survey: +0.3%m/m and 2.8% y/y)
• 10.30 CET: PPI form the U.K (survey: +0.3% m/m and 2.0% y/y)
• 11.00 CET: CPI form the Euro-Zone (survey: +1.2% m/m and 1.7% y/y)
• 11.00 CET: ZEW index for Germany (survey: 42)
• 14.30 CET: CPI form the States (survey: 0.0%; excluding energy and food +0.2%)
• 14.30 CET: Housing starts and building permits (survey: 942k and 930k respectively)

Gold sell off, equities slide, but the currencies calm

Looking only at EUR/USD chart one can see that we had a correction day on Monday, but without any panic. At the beginning of the European session we started at 1.3080, then we briefly moved over 1.3100 and slided under 1.3040. Taking into the account a turmoil on the other markets the session was petty calm. Today we opened around 1.3070.

Analysts are pointing out many reasons regarding the huge gold slide (9% on Monday and over 200 USD since Thursday – from 1560 USD to 1360 USD). They quote some rumors on precious metal reserve reduction by Cyprus (in a need to fight crisis), Goldman Sachs “short” recommendation or a weak GDP reading from China. Clearly a sum of the mentioned cases was a good catalyst and combining them with a favorable “bear” technical situation (where 1530 was a long term support; please look at the chart) resulted in a historic plunge. However, if we look at the subject closer and think what was the main driver which pushed investors to buy gold in the recent years, the answer is clear – expected expected inflation and monetary policy. The precious metal was suppose to hedge against the price increases and depreciation of paper money. In recent month the commodity didn't want to go higher despite aggressive monetary policy. Its value didn't increase even after BoJ asset purchase program. Lack of speculative demand (it was the main driver of the last 10 year surge) and diminishing interest (bullish stock market was taking the attention) finally resulted in the panic yesterday.

The move on gold pushed other commodities lower (Brent crude under 100 USD per barrel) and U.S stock which dived 265 point on the Dow. The plunge was also accelerated by a need to replenish deposits on commodity markets and a deadly blast during the Boston Marathon.

Today we have a decent set of data. It is worth to observe the market reaction on worse/better then expected data form the U.S (dollar reaction on weak data especially). Last weak I was also noting the ZEW reading. The expectations seems to be overstated regarding the economy and IFO and PMI correlations. If it falls short of expectations it can cause a sell off one EUR/USD.

The pound is still stable

Similarly to the EUR/USD the sterling was fairly unchanged despite a high volatility on commodities. Today we will receive inflation readings form the U.K. Higher CPI should push the cable to the north and lower can spur some slide (both moves should not exceed 50 pips) The GBP/PLN should remain stable and trade around 4.80.

The zloty was fairly unchanged. Inflation data. When is the next cut?

There was almost no volatility on the PLN yesterday. The Polish currency also reminded stable after the CPI data (0.1% lower then expected but not under 1.0%). It is also worth to cite a statement from the MPC member professor Zielińska-Głębocka. She told Polish Press Agency (PAP) that “in May the Committee will be in “wait and see” mode, and more room the the cut can appear in June or July”. It is in line with recent opinions form professor Chojna-Duch and professor Glapiński. It looks like there seem to be a kind of consensus in the MPC, and the base scenario is a rate cut in June. The question is whether it will be 25 bps or may be surprising 50 bps (like in March).

The zloty should be stable today with a slight tendency to the weaker side in case of more slide on equities and risk off sentiment.

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:

Another day without no major changes on the daily charts. All the base case scenarios are valid.

Technical analysis EUR/USD: we did move above 1.3000 so it changes the overall tendency. The next resistance level is around 1.3100-50 (50 DMA) and in extension 1.3300 (from the last slide started). The alternative scenario (low probability now) is slide under 1.2850 (200 DMA and 50 % Fibonacci entrancement level) and extension of the bearish move toward 1.2700.

Technical analysis EUR/PLN: we got another sell signal – slide under 4.1200). The next stop should be around 4.06 and in extension 4.03. The alternative scenario is range trade (4.15-4.20) but only after move over 4.1600.

Technical analysis USD/PLN: sliding under 3.1400 last week was another signal to continue the recent move. The next stop is expected around 3.05. The alternative scenario is a buy signal but only after breaking above 3.20.

Technical analysis CHF/PLN: after sliding under 3.4000 we are in the well known territory (range 3.33-3.40). Another sell signal should be generated under 3.3300 level. If the 3.3300 support holds then the base case scenario is range trade between 3.33 and 3.40.

Technical analysis GBP/PLN: the target for the pair is moving toward the recent lows around 4.7000. The alternative scenario is move over 4.90 and then opening new longs/ closing shorts.