Daily analysis 17.12.2013

The EUR/USD has been traded above 1.3750 in the recent hours. Solid industrial production from the US was ignored by the dollar. German ZEW index has an opportunity to make a multi-year highs. But at the end of the day Fed only counts. The zloty is stable around 4.1750 per the euro and 3.03 to the dollar.

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.
• 11.00 CET: ZEW index from Germany (Survey: 55 points).
• 14.30 CET: CPI from the US (survey: 0.0% m/m; the consensus range is between 0.0% and 0.1%.

No major changes. Industrial production from the US and the ZEW from Germany

The most traded currency pair has clearly been waiting for the Federal Reserve meeting. It was also confirmed by ignoring stronger-than-expected industrial production data form the States. I would be particularly cautious shortly after the Fed announces its decision. The market is pretty confused recently and any reaction is possible. Today it is worth to focus on the ZEW index (taking into the account recently published data from Germany the reading can be pretty solid) and CPI from the States.

Investors ignored another time positive for the dollar economic reports. The US industrial production rose by 1.1% m/m, whereas economists' expectations were around +0.5%. Moreover, as Bloomberg reports, the capacity utilization rose to 79% in November, which was the highest reading since June 2008. These are another arguments (not the key ones) supporting an earlier tapering. If we get back to September we can remember that there were 3 key issues which stopped the Federal Reserve to begin the asset purchase reduction – economic conditions (mainly unemployment), budget issues and inflation. Looking at the available data today we can clearly see that the overall macro situation has significantly improved. Additionally, politicians have resolved the fiscal issues, so that argument is not valid today. The only argument for Fed's doves is inflation. Some of the FOMC members suggest (James Bullard) that if the inflation does not come back to the target then the tapering should be stopped. The Fed also considers to lower the unemployment threshold in its forward guidance as a guarantee that the interest rates will not be risen quickly. However, taking into the account all the available data and the recent statements, the most possible scenario is a small taper (5-10 billion) in either December or January and no changes to forward guidance or implementing the inflation floor.

Summarizing, the EUR/USD should be traded close to the previous levels. A solid ZEW reading can keep the euro-dollar rate at the current level, but I would not expect that the German index can push it higher. Despite that the Fed closely monitors the inflation, the CPI report will not probably change any FOMC decision (it is too late and the Committee analysis rather PCE inflation than CPI).

No changes on the zloty

The trading on the zloty has been traditionally pretty calm. We also don't expect major trend changes after Fed's announcement. In case of a small taper the zloty can waken to the euro up to one percent. On the other hand if the Federal Reserve decides to keep the asset purchase at unchanged level then we expect the EUR/PLN to slide near 4.16, USD/PLN to 3.00 and CHF/PLN to 3.40.

Today the zloty should be pretty stable and trade within the range of 4.17. Other Polish pairs are also expected to remain at current levels in the incoming hours.

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

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