Daily analysis 16.11.2012

Worse than expected data from the global economy didn't spur sell off on the EUR/USD. Has market switched again to the perception: „weak economy more FED easing is on the way”?. PLN stronger, but the correction move is suppose to end soon.

Macro data:

• 15.15 CET: Industrial production (USA)

Data one way, the market the other.

Yesterday we didn't have a positive surprise from Europe. Although economic data were slightly better than expected it was confirmed that the Eurozone has entered into technical recession period (the second consecutive quarter of decline in GDP). Additionally the reports from the U.S were weak. Philadelphia Fed index and the NY Empire State recorded negative readings. However, the weekly jobless claims the mostly differed from expectation (prog. 375K; reading: 439K). Analysts explained that Hurricane Sandy was to blame. How reliable is the hypothesis we shall see in the coming weeks. A series of weak data, however, did not result in common currency sell off. It is possible it is the beginning of previously observed opinion: "The worse the data the greater the chance for additional stimulation form the FED" In the coming days investors should closely monitor the market reaction to the positive / negative surprises.

Will FED buy more?

In the recently published survey by the Federal Reserve Bank of New York all primary dealers (http://www.newyorkfed.org/markets/pridealers_current.html) believe that FED will expand the QE3 by purchasing bonds on the secondary market. The same financial institutions believe that the FED purchases will top 85 billion USD on the monthly basis (40 billion for MBS and 45 billion for bonds), and will last till the Q1 of 2014. It think that this message has not been discounted by markets yet. The 11-12 December FOMC meeting will be a good opportunity for trades to use it as a tool to depreciate the dollar and appreciate emerging markets currencies (i.e. PLN).

PLN pays attention to the rates and EUR/USD.

Polish currency used yesterday's EUR/USD rebound to correct some of the losses. Similarly to Eurodollar, PLN proved resistant to declines in the U.S. and weak economic data from world's largest economies. The market has been recently flooded with the MPC statements, who mainly confirm the Belka's easing policy stance after the November meeting. In the same tone investors can understand Jerzy Hausner view. He stated that the decline in interest rates will occur "sooner rather than later." Market estimates that a further reduction in the cost of money will take place in December, and then probably in January and March. In the second quarter it is expected that inflation will return to the 2.5% target and interest rates will be at 3.75% level. Upward deviation from these estimates should strengthen the PLN.

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

Technical analysis EUR/USD: in the coming days the common currency will suppose to return to the downside move. After the correction move EUR/USD is expected to test 50% Fibonacci retracement level (1.2600) and then 1.2475 (61.8% Fibonacci retracement level).

Technical analysis EUR/PLN: the EUR/PLN is expected to end its correction move and come back to upside move. At the beginning it is suppose to successfully test 4.17-4.18 (recent highs, 200 DMA and 38.2% Fibonacci retracement level) at set the direction toward 4.2300.

Technical analysis USD/PLN: the correction move is suppose to end soon. The USD/PLN is expected to go above 3.300 and further to 3.3400 where the midium-term trend can be switched upwards.

Technical analysis CHF/PLN: similarly to EUR/PLN the franc to zloty is expected to return to upside move with the first target around 3.5000.