Daily analysis 18.03.2013

Profit taking on recent dollar gains caused EUR/USD and GBP/USD to rise. The real test of the Thursday's move will be today's macro data. The parliament in Japan accepted the new BOJ governor today. In Poland the PLN is weaker after lower-then-expected inflation report.

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

• Start of the EU summit – around 17.00 CET
• 11.00 CET: CPI in Euro Zone (survey +0.4 m/m and 1.8% y/y)
• 13.30 CET: CPI from the U.S (survey 0.5% m/m; Ex Food and Energy +0.2% m/m)
• 14.15 CET: Industrial production form the U.S. (survey +0.4% m/m)
• 14.55 CET: University of Michigan Confidence index (survey 78 points)

Weaker greenback.

The midday USD slide was pretty mysterious on Thursday. Just after the jobless claims report form the US economy (better-then-expected => positive for the dollar) we saw the lows of the day on EUR/USD (around 1.2910). However, just after the US opening we could observed a gradual greenback weakness and at the European evening we were around 120 pips higher (1.3030). There is no consensus what was the exact cause of the such strong rebound. There are rumors that the move was initiated by few “large orders” and then the jump was extended by some encouraging ideas from the UE summit (less restrictive budget rules; more focus on GDP growth and unemployment). The pound rebounded even stronger then the eurodollar. The cable started rising at the same time as the euro and ended the day with 190 pips move (from 1.4930 to 1.5120). Also concerning the sterling surge there is no single explanations. Analysts point out the short squeeze, and Qatar investments in British infrastructure (around 10 billion pounds). Later there was also a statement from Mervyn King that “BoE not looking to push pound down”. A good test of dollar's weakness could be today's economic data. If the inflation in the States is higher then expected or production reports and the confidence index are better then anticipated then we should expect the dollar to strengthen. The scale of the move will show us how much investors are involved in the recent correction.

Kuroda accepted by the Upper House.

The Upper House of Japanese parliament (earlier also the Lower) accepted Haruhiko Kuroda as a BOJ governor. The nomination was also approved for his two deputies (Kikuo Iwata oraz Hiroshi Nakaso). Currently the USD/JPY pair is trading around 96 level (close to the recent tops). The market is starting speculating again on the possible timing of an extraordinary BOJ meeting where the Bank will decide to increase its asset purchase program. However, cited by the Journal, Haohiko Baba, chef economist in Goldman Sachs Tokio office claims that “market already appears to have discounted some of these policies, including an addition of more then 10 trillion JPY to the asset purchasing budget” In the longer run I would sill see the pressure on the yen (especially on the 2014 huge QE operation) what suppose to result in successful test of 100 on USD/JPY.

Lower inflation weakens the PLN.

Published on Thursday the inflation report (1.3% y/y vs estimates around 1.5%) weakened the Polish currency by 0.01PLN just after the announcement. During the whole day the euro strengthened from 4.1400 to 4.1600. If we get worse then expected data from retail sales and industrial production next week, then we should expect the PLN to move toward 4.2000 per the euro. It is worth to note the GBP/PLN moves. Due to pound gains vs euro and euro zloty rise we managed to break down trend line at 4.7700 and currently we can target the short-term rise toward 4.87. In the medium term, however, (taking into account account the U.K's economy and monetary policy) it is more probable that we came back to slide on GBP/PLN.

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

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

Technical analysis EUR/USD: yesterday we missed the medium-term target only by around 40 (lows 1.2910; target 1.2870-1.2840) - head and shoulder target, 50% Fibonacci retarcement level and 200 DMA. If we move above 1.3100 then we can expect a move toward 1.3270-1.3300 in the short-term. However, until 1.3100 is breached there is more possible that we fall then rise.

Technical analysis EUR/PLN: the base case scenario is the range trend on EUR/PLN (between 4.12 and 4.17-4.1800). It is still worth to remember about 50 DMA crossing 200 DMA (golden cross) which can generate the buy signal when the pair jumps over 4.1900. On the other hand the slide under 4.1200 should results in the move toward 4.08.

Technical analysis USD/PLN: the base case scenario is still a move toward 3.23-3.27 (between 200 DMA and 50% Fibonacci retracement level). The comeback to the downtrend is possible after sliding under 3.1300 (low probability).

Technical analysis CHF/PLN: the pair looks pretty stable now. Trading between 3.33-3.41 is neutral for the CHF/PLN and it is also the base case scenario. Breaking up the range trend should generate the buy signal and sliding under 3.3300 should attract bears.

Technical analysis GBP/PLN: the strong rise above the downtrend line caused that we are currently at 4.82 level. In the short therm the target is around 4.87-4.90 (between 50 DMA an 23.6% Fibonacci retracement level). In the medium term, however, all the rises which are not exceeding 4.9000 should be used to open short positions with the target around 4.5000. The level around 4.9000-5.0000 is neutral for the pair and the medium-term bullish trend is expected after moving above 5.0000.