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Daily analysis 16.09.2013

16 Sept 2013 15:10|Marcin Lipka

Summers decided to withdraw his candidacy for the Fed's chairman due to mounting pressure from Senate and Obama's weak position. Syria and German election with no influence either in short or in medium term. Polish asset on the rise after the Fed's race shifts.

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

  • 15.15 CET: Industrial production from the US (survey +0.4%)

Summers quits Fed's race

We ended Friday around 1.3300 on the EUR/USD. The selling pressure on the dollar was mounting after worse-than-expected retails sales and University of Michigan index from the US. Low readings didn't, of course, change the approach toward tapering, but it increased the odds that the QE reduction will be lite (around 10 billion). However, nobody probably expected that after the weekend we would get much closer to decision on Fed's nomination, which on Monday's opening depreciate the dollar more than 50 pips.

Late Sunday evening (CET) Summers' resignation hit the wires. One of the two main contenders (some claimed even that he was leading the race) decided to withdraw his candidature for the Fed's chair. I accidentally wrote in the Friday's analysis that regarding the opposition from both democrats and republicans in Senate, Obama, after his failures on Syria, can choose the “easy option” and choose Janet Yellen. Analyzing Summers' letter to Obama we can clearly find out what was the reason of his resignation. On September 15th he wrote to the president that “ I have reluctantly concluded than any possible confirmation process for me would be acrimonious and would not serve the interests of the Federal Reserve, the Administration, or ultimately, the interests of the nation’s ongoing economic recovery.” It is clear that the letter must have been consulted with Obama before it was published. They both probably decided that it would look much better if a candidate withdraws himself than be either dismissed by the president or face another fight (similar to Syria) with the Congresspeople (more specifically Senate Banking Committee and then the Senate). In result we have only one major candidate – Janet Yellen. There are other names which circulates in the press but the third person who has been mentioned by Obama is Donald Kohn. At the end of July “The Wall Street Journal” in an article “Who is Don Kohn” presented the candidate in a few paragraphs. Kohn has been connected with the Federal Reserve for 40 years. He was a close advisor both to Greenspan and to Ben Bernanke. In 2002 he was nominated as a Fed governor and in 2006 become the vice chairman. As “WSJ” points out he “is known for his caution, and might be less aggressive in using the Fed's monetary muscle than either Summers or Ms Yellen”. Trying to put it into the market perspective he can be less dovish (at least when the policy is focused on keeping low rates for an extended period of time with thresholds which still can be modified). However, at that moment the current vice chairwoman is a leading candidate what can be clearly seen from the markets reaction – stocks soared, bond yields dropped and more risky currencies gained some value.

Two other major cases (German election and Syrian conflict) have been getting much less attention form the market. The first seems to be already resolved after the Bavarian voting where CSU won most seats in the local parliament. Regarding the Damascus issues the problem is going to be resolved through the diplomatic channel which is the best possible option for the bulls.

Summarizing, the Summers' withdrawal from the Fed's race not only can be seen as the dovish message in the long run but it can decrease the meaning of the Wednesday's decision. Even if Bernanke announces the taper in two days, investors can limit their appetite on dollar having in mind that Yellen will be at least as dovish as Bernanke so the QE reduction will be probably slow and the rate hike unlikely before 2016. Therefore there is an increasing chance that we can move to the north and breach 1.3400 resistance in the near future.

Polish assets on the buy side

The zloty caught the improving global sentiment and strengthened in line with the South African rand, Mexican peso or the Turkish lira. It is the direct outcome from the Lawrence Summers' resignation and Syrian conflict shift. The increasing odds that Janet Yellen will run the Fed, have been putting the pressure on the dollar and shifted the capital flow toward more risky assets. The yields on Polish 10-year bonds dropped to 4.4% and the zloty opened under 4.20 per the euro in the morning trading.

There is a high probability that the current trend will continue even after the Fed's meeting on Wednesday. However, I don't expect that we will drop under 4.18 per the euro till the tapering decision is announced, but in the medium term (few weeks) it is possible that we can slide toward 4.10 (if the Fed's statement and conference does not scare investors what is getting less and less probable).

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

Range EUR/USD 1.3250-1.3350 1.3350-1.3450 1.3150-1.3250
Range EUR/PLN 4.1800-4.2200 4.1800-4.2200 4.2000-4.2400
Range USD/PLN 3.1400-3.1700 3.1100-3.1500 3.1900-3.2300
Range CHF/PLN 3.3800-3.4200 3.3800-3.4200 3.4000-3.4400

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

Range GBP/USD 1.5850-1.5950 1.5950-1.6050 1.5750-1.5850
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: moving above 1.33 on EUR/USD generates a buy signal. All pairs, but GBP/PLN are in bearish trends.


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: we managed to reach two targets – at 3.18 and 3.15. If the pair slides under 3.13 we should expect the bearish trend to continue toward 3.05.


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.


16 Sept 2013 15:10|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 13.09.2013

12 Sept 2013 12:00

Daily analysis 12.09.2013

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Daily analysis 11.09.2013

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