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Daily analysis 17.12.2012

17 Dec 2012 10:47|Marcin Lipka

The Liberal-Democratic party wins election in Japan. USD/JPY the stronger in 20 months and EUR/JPY tops march highs. Closer to the resolution in the U.S fiscal negotiations. In Poland talks regarding Eurozone accession has truly started.

Macro data (CET- Central European Time):

  • 14.30 CET: NY Empire State index

EUR the strongest of the “big three”. Progress concerning the cliff.

The winner of the Japanese, as expected, is Liberal-Democratic Party (LDP) run by Shinzo Abe. However, the scale of the victory surprised observes of Japanese political scene. Abe won 294 of 480 seats in the parliament and is a certain to become the next Prime Minister. The JPY weakens by 60-100 pips after the Asian opening today. The main reason of the sell off are Abe's statements regarding unlimited monetary easing and fiscal expansion. If we compare three major currencies now (USD, EUR, and JPY) it seems that fundamentally the strongest suppose to be euro in the following months. Unlimited QE in the States and Japan will be weighting on yen and dollar (still not priced in). In my opinion the pressure on the “safe havens” will be put by recovery sings in the Eurozone (which can even start in the 1Q of 2013). Some progress has been achieved during the weekend negotiations regarding the so called fiscal cliff. According to www.marketwatch.com John Boehner suggested that Republicans would be able to agree for the tax rise of the rich when Democrats accept lower spending on health care and social security. On the other hand Reuters report that: “Boehner opens door to tax hikes, shifts fiscal cliff taks”. It seems that the real progress could have been made, but the resolution can take a least a few more days because none of the sides wants to be a clear looser in the closely observed battle. It is worth the read between the lines and try to evaluate chances when the solution is really close.

The euro discussion speeds up. What is the market impact?

After many years of mainly risk on/off traded the zloty has a chance to break this trend a bit. All thanks to the recently started discussion regarding the EuroZone entrance. According to PAP reports professor Roman Kuźniar Presidential adviser in the RMF FM radio interview said that: ”President Komorowski is in favor to join the currency union”. Kuźniar also suggested that President was even impatient how the Prime Minister Tusk was handling the issue, but now he sees that some progress has been made. It seems that Komorowski has started the “pro euro” campaign. I want to present 4 main state institutions which will be shaping the “euro climate” in the following months.
- President Komorowski: strongly in favor to join the Eurozone. His approval rating is around 70% what can help the matter at the final stage.
- Prime Minister (form the same party as Komorowski – Civic Platform): in favor but conditionally and does not want to threaten society with euro so he uses phrase “setting the direction of operation” .
- Finance Minister (Rostowski): sets conditions to join the Zone (Poland and the Euro area has to be ready”. Conditionally in favor.
- National Bank of Poland (professor Belka - the governor of the central bank, and the head of MPC): currently against joining the euro. A few days ago he said: “ Poland to reassess euro after Southern Europe growth starts” which is virtually impossible in the following quarters. He will be critical concerning the issues also due to future Bank's job to curb volatility on PLN during the ERM2 period (quite demanding job especially during rapidly changing risk on/of sentiment).

Joining the Eurozone now is more political than economical case (contrary to intuition), therefore government will be the main player in the game. The President will be a bit on side and waiting till the final decision is scheduled and then he will try to use his favorable rating to push the matter further. After a while also the Finance Minister, viewed as an expert, will authorize this historical move.

Market participants will closely observe the social-political discussion regarding the euro and will also analyze other examples form the past. Easy analogies can be find in Slovakia. From the time country joined the ERM2 (November 2005) till the formal accession (January 2009) its currency appreciated more then 20%. However, if you look at the case closer we can see that all the Central European currencies were gaining value till mid 2008 (zloty only few percentage points less then Slovak koruna). Just the aftermath of Lehman Brothers collapse caused CEE currencies to depreciated (koruna was already almost fixed).

I expect that when a formal political decision is made regarding the Eurozone accession, and Poland will be close to meet the convergence criteria (actually now is pretty close) the “yes” will strengthen the PLN but not as much as in the kourna case (max. 0.10 PLN just after the announcement, and max 10% in the 2-3 years time frame). Still the PLN will be also trading on the “sentiment” which can accelerate the move of slower it.

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

EUR/USD 1.3050-1.3150 1.3150-1.3250 1.2950-1.3050
EUR/PLN 4.1000-4.0700 4.0900-4.0600 4.1100-4.0800
USD/PLN 3.1500-3.1100 3.1200-3.0900 3.1700-3.1300
CHF/PLN 3.3800-3.3500 3.3700-3.3400 3.4000-3.3700

Technical analysis EUR/USD: late Friday afternoon the EUR/USD met its target (1.3150-1.3200 range). The breakout of this level can be difficult and the correction move to around 1.3080 is possible. The successful test of 1.3200 is suppose to move EUR/USD fast to 1.3300 levels.


Technical analysis EUR/PLN: technical analysis on EUR/PLN has not changed much. The ligth downside move is still expected with the targets around 4.06 and further 4.04. The strong resistance level is around 4.1200 (23.6% Fibonacci retarcement level and 50 DMA)


Technical analysis USD/PLN: USD/PLN met on Friday the next target around 3.1000. The next support levels are 3.06-07. The correction move should be stopped by 3.1300-3.1400 resistance.


Technical analysis CHF/PLN: after strong downside candle at the beginning of the previous week CHF/PLN range around 3.37-3.39. More possible is the downside move but breakout above 3.4000 suggests to close shorts.


17 Dec 2012 10:47|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.

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