Daily analysis 17.07.2013

The EUR/USD despite some bearish data climbed to around 1.3170 at the end of the Tuesday's session. The whole market is suppose to focus on Ben Bernanke statement. Goldman Sachs on EUR/USD. The news regarding wider deficit plan was ignored by the market. A similar situation will be probably with the industrial production data.

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

• 14.00 CET: Industrial production form Poland (survey: +1.5% y/y)
• 14.30 CET: Building permits and housing starts form the US (survey: 1 million and 960k respectively)
• 14.30 CET: Bernanke testimony to Congress is scheduled to be released (text only)
• 16.00 CET: Bernanke hearing before the House Financial Services Committee
• 20.00 CET: US Federal Reserve releases Beige Book

The EUR/USD climbs above 1.31. Bernanke. Goldman Sachs

The EUR/USD was clearly not eager to stop climbing yesterday. Despite some bearish data (in Europe the ZEW was lower then expected and inflation in the States raised more then estimated) the most traded currency briefly crossed 1.3070 level. It turns out that the majority of market participants were waiting for Ben Bernanke testimony and were not paying attention to other issues. Investors are pretty divided regarding the outcome after the Fed Chairman testimony. The majority of analysts agree that a statement published a 14.30 CET will not push investors to the final decision and they still will be waiting on the Q&A part. The House of Representatives members will at some point try to get the answer from Ben Bernanke what is his view on the future interest rates and how the QE3 tapering operation will be proceed. The key to market behavior will be how Fed's Chief formulates his answer. If he focuses mostly on jobs market weakness (similarly to the last week's economists meeting) or stresses that the inflation is below the target, it can push the dollar lower. On the other hand any suggestion regarding September tapering (ex. putting more attention that NFP average is close to 200k) it can put a significant pressure on the EUR/SUD. Analysts note that Bernanke wants to clearly distinguish between rate hikes and winding-down the QE. In my opinion, however, it should not give any signal to the market because most of its participants already know that. Many currency observers also claim that it is a good opportunity to buy the dollar because its medium-term the perspective is pretty bullish. If we look, however, how Bernanke surprised the market last week and that EUR/USD jumped 400 pips the safest bet is to stay on the sideway during the coming hours.

I noted in the previous paragraph the the dollar seems to be investors' best bet in the medium-term. A contrary view is represented by Goldman Sachs. As Bloomberg reports the most known investment bank claims that the EUR/USD will rise to 1.40 in the next 12 months, whereas the market median survey shows that it will fall to 1.24. Thomas Stolper, chief currency strategist at Goldman claims that “The dollar has benefited form this tapering debate, but the move will be temporary. There is a risk that the Fed will hike [rates] later then when markets anticipate. There is a risk for further re-pricing that could push the dollar down”. Additionally, the bank in a note to the clients sent on July 12th writes that Fed will increase the rates in “early 2016”. Stolper also sees some other flows. He says that “If we see emerging-market currencies weaken against the dollar, and the dollar itself struggling to the strengthen, something has to give”. That's where the euro comes in. It could act as safety valve to maintain consistency in the global currency market”.

Summarizing the base-case-scenario is the EUR/USD rise until Bernanke Q&A part, and then the fall when he confirms the path of QE3 tapering. On the other hand if Fed's Chairman wants to be dovish (as during last week meeting with economists) then the remained short positions will be squeezed and the rise toward 1.33 will be possible.

EUR/PLN falls under 4.28

At the beginning it is worth to note that wider budget deficit is (in theory) not a good message for the currency. It can only be interpreted in the context that a burden (possible budget revision) is not weighting on the market (the situation regarding the budget is more real now). It can be a catalyst of an appreciation move. However, much stronger impulse came firstly form the EUR/USD resistance to the downward pressure, and then from the actual rise on the common currency. Additionally in the recent days EM currencies were stronger, so it also supported the PLN. At the end it is also worth to note the technical analysis which gave another argument to push the EUR/PLN lower.

Today the Polish zloty will be closely listening Ben Bernanke testimony. The EUR/USD slide and US treasuries rise will be an argument to sell the zloty and the EUR/PLN pair can quickly come back over 4.30 mark. On the other hand if we see Fed's chief being more dovish then the EUR/PLN can even slide toward 4.22. The production data will be probably ignored unless the reading is below the zeor (bearish for the zloty) or much better then expected (bullish for the PLN).

Expected levels of PLN according to the EUR/USD rate

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

The EUR/USD is still bullish. All Polish pairs are in bearish trends.

Technical analysis EUR/USD: the EUR/USD moved quite substantially last. It broke many resistance levels and stopped around 1.32. The upside trend dominates now with target at 1.3200 and support around 1.3070. The next support is around 1.2950. If we fall under that level is should generate a sell signal with a target around 1.28

Technical analysis EUR/USD: the EUR/USD moved quite substantially last. It broke many resistance levels and stopped around 1.32. The upside trend dominates now with target at 1.3200 and support around 1.3070. The next support is around 1.2950. If we fall under that level is should generate a sell signal with a target around 1.28.

Technical analysis EUR/PLN: it fell under 4.28 where a sell signal was generated. The target is 4.22 now. Alternatively a rise over 4.32 gives a buy signal again.

Technical analysis USD/PLN: A fall under 3.28 was a sell signal. The USD/PLN target is 3.18-3.14 now. A comeback above 3.34 again favors bulls.

Technical analysis CHF/PLN:the sell signal was generated after falling under 3.48. The target is 3.42 now. Alternatively the rise over 3.52 should be bullish.

Technical analysis GBP/PLN: the sell signal was generated after sliding under 4.97 with a target around 4.9 and in extension even toward 4.8. Alternatively a rise over 5.04 is an indication of bulls' return.