Daily analysis 17.05.2013

A slight rebound on EUR/USD after worse-than-expected data form the U.S and Angela Merkel's comments on Banking Union was used by bears to open more short positions. John Williams (dove) sees QE reduction as early as in Summer. EUR/PLN close to the recent highs.

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

• No major macro data scheduled in the calendar

The dollar is stronger again. Inflation data

Around midday yesterday the EUR/USD moved up slightly form the recent lows (1.2850) on comments from Angela Merkel (support on the Banking Union, more integration on economic policy, cohesive approach toward R&D spending). The correction was extended after weak U.S data. Both inflation and jobless claims fell short of expectation. Slower prices growth and 30k more folks who filed for unemployment benefits spurred a well known trend – weak data means more chances to extend the QE and therefore is bearish for the dollar. We briefly moved above 1.2900, but at the end of the day comments from John Williams pushed the EUR/USD to the opening levels. The FED member (overall dovish but not voting this year) said that the Committee “may reduce QE in Summer, halt by the year end”. It is another indication that the asset purchase is going to be reduced pretty soon. Now the investors will start speculating which assets purchase part will be reduced and on what basis (will be probably more important for the bond market).

As I indicated yesterday any correction should be short lived. Both the fundamentals and technical analysis seems to still support dollar bulls, so the further slide on EUR/USD is more possible that any rebound exceeding 1.3000.

4.2000 is still in range on EUR/PLN

On Thursday we had two contradictory signals published at the same time – inflation data and the IMF report. The prices (core) rose 0.2 percentage point more then expected (1.1% vs 0.9%), and the Fund urges Poland to “continue easing without delay”. The IMF predicts deficit to be around 4% this year (whereas Ministry of Finance – 3.5%) and the GDP growth 1.2 ( MF – 1.5%). There is a question then whether the Polish MPC take into the account any Fund's recommendations and cut in June or more the recent data and wait with more easing till July. In my opinion and according to the recent statements by the Members it seems that the MPC will cut the rates earlier then later. If it moves the easing toward July their decisions will be looking very inconsistent (March drop 50bps, April – pause, May cut 25 bps. June – no change, and July 25 bps slide).

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

No changes on the technical analysis except the CHF/PLN. The target is currently 1.2800 on the EUR/USD and in extension 1.27. On Polish pairs: USD/PLN and GBP/PLN – bullish; EUR/PLN and CHF/PLN range.

Technical analysis EUR/USD: The EUR/USD continues the slide with the target around 1.2800 (lows from March and April). Further we should see test of 1.2700. If breached then the bullish trend from mid July last came to the end.

Technical analysis EUR/PLN: the base scenario is still the range trend (4.12-4.20). Alternatively the breakout above 4.20 should generate fast move toward 4.25-4.30.

Technical analysis USD/PLN: the 3.27 target is still in place with extension to 3.3300. A comeback to the sliding trend is possible after falling below 3.18 (low probability currently).

Technical analysis CHF/PLN: we moved back to the range trade (3.33-3.41). A sell signal should be generated again after sliding below 3.3300.

Technical analysis GBP/PLN: the short term target for the pair is a move toward 5.0000 and an attempt to change the mid term trend to rising. The breaking above 5.0000 should initiate the move toward 5.1000. The alternative scenario is a move under 4.85 where bears should take the lead.