Daily analysis 16.12.2013

The EUR/USD is again close to 1.3750 level. Solid PMI readings from Germany, but weak from France. Former Fed's vice chair sees tapering in 2014. The Polish zloty with a slight appetite to gain some value, but 4.16 per the euro should not be breached.

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

• Besides the market consensus we are also publishing the consensus range. It gives more info how economists predict the incoming data and what kind of impact can be generated from surprising reports.
• 15.15 CET: Industrial production form the US. Survey: +0.6% (range between +0.2% to 1.0%).

France, Germany and Kohn

The EUR/USD doesn't seem to be concerned with a possible “tapering” as early as this week and mediocre data from the euro area. Investors will be waiting till the Wednesday evening when the Federal Reserve is scheduled to announce its monetary decision (QE changes?; Forward guidance modification?). Other economic reports should have a limited effect on the analysed pairs.

Before 10.00 CET preliminary PMIs from two major Eurozone economies were published. The French Purchasing Managers' Index reported by Markit came significantly below the expectations and deep under 50 mark – both manufacturing and services are around 47 points for December. The data may suggest that France can report a second in a row negative GDP reading which can push the country into another recession. On the other hand Germany is in a completely opposite situation. The manufacturing PMI was reported at the highest level (54.2) since May 2011. Commenting the data, Tim Moore, Senior Economist at Markit wrote that: “Manufacturing achieved a particularly strong end of the year, with improving new order flows and renewed job creation also providing encouragement that the sector has gained momentum since autumn”. The service sector didn't hit a new record, but despite a fall from 55.7, the reading at 54.0 points is still a strong one and does not indicate any slowdown. Surprisingly the manufacturing Eurozone PMI were also pretty strong – 52.7, but the services index fell to four-month low at 51.0. Chris Williamson, Markit chief economists wrote that the PMI “is signalling a mere 0.2% expansion of the GDP in the fourth quarter, suggesting the recovery remains both weak and fragile.

Getting back to the main main topic – Federal Reserve decision on Wednesday, it is worth to cite a former vice chair Donald Kohn. As “The Wall Street Journal” reports he was asked whether “he would recommend policy makers hold off until next year before pulling back on their bond buying program”. He replied that “I think I would wait, but it's a close call”. The “WSJ” reminds that Kohn was a key adviser to Ben Bernanke and “worked closely for many years with the Fed's top leaders and knows well how they think about the policy decisions”.

Summarizing, the recent EUR/USD resilience clearly shows that it doesn't want to fall under 1.3700 before the Fed's meeting. On the other hand it is hard to expect that before the Federal Reserve decision we can move significantly above 1.3850. Therefore the base case scenario for the incoming hours is a range traded between the mentioned levels.

The zloty is slightly stronger

The Polish currency is somewhat stronger today and has been traded around 4.1750. The move, however, doest not seem to be strong enough to test the 4.16 level. The EUR/PLN should also remain above that key level even in case the Federal Reserve keeps its asset purchase program in the full mode. More strength we can expect on the USD/PLN where the 3.00 mark test is again anticipated.

Published on Friday the BOP data was close to the market expectations. The deficit on current account was around 500 million euro. The BOP also showed that in October the Polish economy enjoyed another month with trade surplus (fractional 53 million euro; probably the last month this year with imports lower than exports).

Summarizing, the zloty will be waiting for the Federal Reserve meeting (Wednesday). However, no matter the result is, I don't expect that we can move on the EUR/PLN above 4.21 (in case of tapering) or fall under 4.16 in a scenario when the Fed keeps it QE in the full scale.

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

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