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Daily analysis 16.10.2013

16 Oct 2013 14:28|Marcin Lipka

The never ending story. A possible market reaction after the deal is reached. Fitch put the US rating on the negative watch list. The zloty is giving back some of its Tuesday's gains.

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

  • No key macroeconomic data today.

One day left

Despite many suggestions from Congress members that the bipartisan fiscal agreement is very close and the debt celling will be lifted, we still don't have any formal decision. This time some disagreements inside the Republican party caused the voting to be postponed. The dollar was also slightly hit by Fitch warnings and putting the US on list to cut the rating within 6 months.

Investors seem to be a bit tired with all the budget discussions. Their reactions are also muted (on currencies). The market does not believe either in good info or some possible steps back. It has learned that if a negative message hit the wires it can be quickly denied by a good one, and inversely. Yesterday the all the turmoil came for the Republican party. Some of the GOP members rejected John Boehner bill, and it voting was canceled by the House. Additionally, the uncertainty was built by Fitch decision. It put the US rating on the negative watch list. The Agency claims that political disagreements are decreasing the States' credibility and can also weight on the economy. Fitch, however, believes that “an agreement will be reached to end the current political impasse and raise the US debt celling. Even if the debt limit is not raised before or shortly after 17 October, we assume there is sufficient political will and capacity to ensure that Treasury securities will continue to be honoured in full and on time”. It seems that the same opinion is shared by most market participants.

We can conclude that the EUR/USD has already priced in, a scenario the debt limit would be raised and the celling will be moved to February 7th. We cannot also forget about the events which will hit the wires after the fiscal issues are resolved. A strong impulse for the EUR/USD can have the September jobs report (publication was canceled due to government shutdown) and other macroeconomic data which will be giving indications whether the Fed can start tapering in December or put that date further into the future.

The zloty is giving back some of the gains

The zloty, which was traded in the narrow range, gained some value yesterday and pushed the EUR/PLN toward the 4.16 support (levels which were briefly reached when the Federal Reserve decided not to taper). However, today the Polish currency gave back some of the Tuesday's strength It seems to be still clear that the PLN is rather eager to be stable or slightly stronger than prone to fast appreciation or swift changes. The zloty also wants to take advantage from possible full scale QE extension. The best case scenario for the Polish currency is modest US economy which is not strong enough to withdraw the stimulus, but also not weak enough to threat the world economy and cause another major global slowdown.

Today we should stay between 4.16-4.18 levels. We also don't expect any major reaction on the zloty if the Congress announces the fiscal deal.

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

EUR/USD 1.3450-1.3550 1.3550-1.3650 1.3350-1.3450
EUR/PLN 4.1600-4.2000 4.1600-4.2000 4.1600-4.2000
USD/PLN 3.0700-3.1100 3.0400-3.0800 3.1100-31500
CHF/PLN 3.3600-3.4000 3.4000-3.4400 3.4000-3.4400

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

GBP/USD 1.5950-1.6050 1.6050-1.6150 1.5850-1.5950
GBP/PLN 4.9100-49500 4.9300-4.9700 4.8900-4.9300

16 Oct 2013 14:28|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.

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