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Daily analysis 17.09.2013

17 Sept 2013 11:54|Marcin Lipka

The EUR/USD is still around 1.3350 after Summers' withdrawal for the Fed race. Financial institutions estimates regarding the Wednesday's FOMC decision. Kohn on dovish monetary policy. Wolfgang Schauble in Financial Time on European crisis. The zloty in narrow range still around 4.20 per the euro.

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

  • 11.00 CET: ZEW index from Germany (survey: 45 points)
  • 14.30 CET: CPI from the States (survey +0.2%)

Financial institutions on the Fed's decision. Kohn and Schauble

The EUR/USD managed to hold most of the Monday's gains and we are opening today around 1.3350 on the most traded currency pair. The news of the day will be ZEW reading from Germany. Economists expect the index to be around 45 points which would be the highest number since March. However, regarding the Wednesday's Fed decision the data would have to deviate significantly from the market expectations (at least 5 points) to have any impact on the EUR/USD.

Recently I have mentioned frequently about different scenarios on the incoming Fed's meeting. This time I want to present selected opinions from institutional professionals. The data was collected by Bloomberg on September 16th. Barclays claims that, FOMC will decide to cut the asset purchase by $15 billion (5 MBS and 10 UST). The British bank does not see a modification on forward guidance [overall bearish for the EUR/USD – author's note]. On the other hand Bank of America Merrill Lynch is “skeptical of Sept. taper because FOMC likely to lower growth forecast for 2013”. BofAML does not see the forward guidance to be modified [overall bullish on the EUR/USD – author's note]. A positive message for the euro-dollar is sending also Credit Agircole. The French bank predicts that the Federal Reserve will cut its economic growth estimates both for 2013 and 2014. Moreover it will also modify the forward guidance on unemployment from 6.5% to 6.0% and start the tapering in September winding-down the QE by $10 billion (5 on MBS and 5 on UST).

After Summers' Sunday decision, the frontrunner for the Fed's chair is Janet Yellen. However, Obama has talked not only with Summers and Yellen, but also with the third candidate – Donald Kohn (who spent most of his professional life with Fed – more about him I wrote in yesterday's analysis). Today “The Wall Street Journal” suggested that Kohn can be more hawkish than current vice chairwoman. In an article “Fed Candidate Kohn Warns Easy Policy Leads to Imbalances”, Ian Tally points out that in Monday's speech on “Macroprudential policy” at Brookings Institution he said that “In these extreme kinds of circumstances, each policy may need to pay more attention to the objectives of the other’s. So for example, the example that’s often used, very easy monetary policy builds imbalances that may be so large, that may become so large they can’t be countered by regulation.” So if he gets more support from Obama (rather unlikely) we can expect that it can give some boost to the dollar.

Getting back for a while on our side of the Atlantic it is worth to read German finance minster letter published by “Financial Times” with striking title “Ignore the doomsayers. Europe is being fixed”. Wolfgang Schauble claims that the current Euro Zone crisis does not differ much from others in the history. As an example he is giving German situation at the end of 90s which was seen “a sick man of Europe”. However, thanks to cooperation from public and private sector, “fixing social security” and increased spending on R&D, it has the lowest youth unemployment and its economy is flexible and competitive. The German finance minister claims that the similar processes are observed in Europe. He writes that “In just three years, public deficits in Europe have halved, unit labor costs and competitiveness are rapidly adjusting, bank balance sheets are on the mend and current account deficits are disappearing.”Schauble ends that “Systems adapt, downturns bottom out, trends turn. In other words, what is broken can be repaired. Europe today is the proof.” There are for sure many many economists who will disagree with the finance ministers, but one fact certain – the next weekend is German election.

Summarizing we are still waiting for the Wednesday's Fed decision and more info on future Federal Reserve chairperson. Today we should move close to the current levels – 1.3350.

The zloty in the narrow range

The zloty in early morning was relatively strong but around 10.00 CET it weakened slightly and the EUR/PLN rose to 4.21. It does not change the Polish currency perspective for the incoming hours and there is still more probable the rise/consolidation than a slide.

The key to the local currency will be still Wednesday's decision from the Federal Reserve (firstly the tapering issues, than forward guidance, growth and interest rate projections and also the new info on future Fed's chief). In a negative scenario for the dollar (the rise over 1.3400) we can expect to zloty to strengthen under 4.20 per the euro. Tomorrow the market will focus (briefly) on the manufacturing production, but regardless the data it will not have any impact on the day end rate.

Today the zloty will probably be traded around 4.19-4.22 per the EUR/PLN and the Swiss franc at 3.40. A similar scenario is expected tomorrow until the late afternoon.

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

Range EUR/USD 1.3250-1.3350 1.3350-1.3450 1.3150-1.3250
Range EUR/PLN 4.1800-4.2200 4.1800-4.2200 4.2000-4.2400
Range USD/PLN 3.1400-3.1700 3.1100-3.1500 3.1900-3.2300
Range CHF/PLN 3.3800-3.4200 3.3800-3.4200 3.4000-3.4400

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

Range GBP/USD 1.5850-1.5950 1.5950-1.6050 1.5750-1.5850
Range GBP/PLN 5.0100-5.0500 5.0300-5.0700 4.9900-5.0300

The comeback over 1.3300 will negate the last week's sell signal. Mix on the zloty pairs.

Technical analysis EUR/USD: moving above 1.33 on EUR/USD generates a buy signal. All pairs, but GBP/PLN are in bearish trends..


Technical analysis EUR/PLN: the fall under 4.26 generates a signal toward a range trade between 4.22-4.26. Sliding under 4.22 prefers the bearish positions toward 4.18.


Technical analysis USD/PLN: we managed to reach two targets – at 3.18 and 3.15. If the pair slides under 3.13 we should expect the bearish trend to continue toward 3.05.


Technical analysis CHF/PLN: the comeback under 3.43 negates the buy signal. Now the base case scenario is a range trade between 3.40-3.45. Sliding under 3.40 generates a sell signal with target at 3.33.


Technical analysis GBP/PLN: on the pound there is still bullish trend. Only a slide under 5.00 generates a sell signal with a target at 4.93.


17 Sept 2013 11:54|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.

See also:

16 Sept 2013 15:10

Daily analysis 16.09.2013

13 Sept 2013 13:22

Daily analysis 13.09.2013

12 Sept 2013 12:00

Daily analysis 12.09.2013

11 Sept 2013 14:22

Daily analysis 11.09.2013

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