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Daily analysis 18.04.2013

18 Apr 2013 10:29|Marcin Lipka

Significant slide on EUR/USD after Bundesbank chief comments on possible interest rate cut. But did he really say what is widely cited by news agencies? The Wall Street Journal Weidmann interview in details. The pound slided on higher unemployment. Today we have the retail sales form the U.K. The zloty is still stable. Investors are waiting for the industrial production report.

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

  • 10.30 CET: Retail sales form the U.K excluding auto fuel (survey: minus 0.6% m/m and +0.9% y/y)
  • 14.00 CET: Industrial production form Poland (survey + 10% m/m and minus 2.2% y/y – yearly data much more important
  • 14.30 CET: Initial jobless claims from the U.S (survey 350k)
  • 16.00 CET: Philadelphia Fed. Index (survey 3.0)
  • 16.00 CET: Leading indicators form the U.S (survey 0.1)

EUR/USD slide after Weidmann's words. Was The Wall Street Journal interview properly interpreted?

Yesterday I tried to point out that markets are trying to interpret favorably some events and sometimes are looking for an excuse regarding some larger moves. A bit in relation to my Wednesday's remarks we had another interesting case yesterday. During much of the European session the EUR/USD was trading close 1.3150-1.3200. Around 15.00 CET we got some news headlines that “ECB may cut interest rates if warranted by new info”. The statement was made Jens Weidmann (seen by markets as a hawk – what means that he needs “strong” arguments to vote for the cut), and instantly pushed the EUR/USD down by 100 pips to around 1.3050 (also the current level).

As I point out quite frequently most of the currency moves are based on anticipation of coming central bank decisions (mainly on expected asset purchase in the U.S, Japan or the U.K, future monetary policy and special liquidity or emergency programs (Europe). The move on EUR/USD on Wednesday would be justified if Bundesbank chief really said it. Looking to the source of the information – The Wall Street Journal (“Jens Weidmann Q&A”) http://blogs.wsj.com/eurocrisis/2013/04/17/jens-weidmann-qa/) we cannot in any way conclude that the ECB member is in favor of the benchmark decrease. Firstly answering the question “What more can the ECB do?” (to get out of stagnation) He says: “Central banks have already delivered a lot. We have interest rates at historical lows, with real interest rates markedly negative in some parts of the market. We provide liquidity to an unlimited extent as long as there's sufficient collateral. And we softened our collateral rules. Answering for the question on inflation (the main argument for the cut) he says “ As you know, our objective is striving to have an inflation rate close to but below 2% in the medium term. Besides I'm not a big fan of fine-tuning decimal points on the inflation rate (…). “WSJ: So you're comfortable” (with the current rate.) Weidman claims “ As we didn't change interest rates at our last meeting, this means that we considered our monetary policy stance sill appropriate. We might adjust in response of new information. But again, interest rates in the euro are are historically low. Monetary policy is already quite expansionary, and I don't think that the monetary policy stance is the key issue”. The message which was interpreted by news agencies is “ We might adjust in response of new information”. There was no other remarks on interest rate levels. Additionally the interview was published on 11.35 (few hours before the move), what is a confirmation that firstly it was viewed as a “not important”.

On the other hand I also want to emphasis that investors should not fight with the market. If we move under psychological (and also technical) 1.3000 level then the move should be extended to the downside. And regarding the interview nobody would ever think about it again (even if a clarification hits the wires).

The pound is weaker. Today we have the retail sales reading

We had a strong slide on the cable. It was caused by higher unemployment reading (7.9% ; survey 7.8%) and some fears on today's retail sales. Regarding the monetary policy, similarly to the previous months, three out of nine members supported additional QE. Looking at the sterling more close we can see that if the 1.5200 support is broken than we can expect the move toward 1.5000 and in extension to the test of recent lows. The GBP/PLN should remain fairly stable around 4.8000.

Low volatility on the zloty. Industrial production data

The Polish zloty was slightly waker to the euro in reaction to the EUR/USD slide and some rise of overall risk aversion. Today the market should be focused on industrial production. The PLN should be supported if we get the reading above the break even (over 0% y/y). On the other hand in case of a weak data (below 5% contraction) then we can expect a depreciation by up to 0.02 PLN (more probability of a cut in June and bringing MPC closer to a bold 50bps slide). However the base scenario for the zloty today is a range trade between 4.10-4,.13.

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

EUR/USD 1.2950-1.3050 1.3050-1.3150 1.2850-1.2950
EUR/PLN 4.1100-4.1500 4.1000-4.1400 4.1300-4.1700
USD/PLN 3.1500-3.1900 3.1200-3.1600 3.1900-3.2300
CHF/PLN 3.3700-3.4100 3.3600-3.4000 3.3900-3.4300

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

GBP/USD 1.5250-1.5350 1.5350-1.5450 1.5150-1.5250
GBP/PLN 4.7900-4.8300 4.8100-4.8500 4.7700-4.8100

Overall technical situation on the analyzed pairs.

Wednesday's slide on the EUR/USD is making the technical situation more complex. If we confirm the slide by moving under 1.3000 (by around 50 pips) then it will signal the end of the April upside trend. The base scenario on the Polish pairs remains unchanged.

Technical analysis EUR/USD: 100 pips slide yesterday pushing back a possible test of 1.3300. Now the key for the bulls will be staying above 1.3050. In the level breaks then we should expect the move toward 1.2700.


Technical analysis EUR/PLN: no major changes on the EUR/PLN. The next stop should be around 4.06 and in extension 4.03. The alternative scenario is range trade (4.15-4.20) but only after move over 4.1600.


Technical analysis USD/PLN: despite a strong upside move yesterday the base scenario is still bearish with the target around 3.05. Alternatively the move over 3.2000 should be a signal to close shorts/open longs.


Technical analysis CHF/PLN: after sliding under 3.4000 we are in the well known territory (range 3.33-3.40). A sell signal should be generated under 3.3300 level. If the 3.3300 support holds then the base case scenario is range trade between 3.33 and 3.40.


Technical analysis GBP/PLN: the target for the pair is moving toward the recent lows around 4.7000. The alternative scenario is move over 4.90 and then opening new longs/ closing shorts.


18 Apr 2013 10:29|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:

17 Apr 2013 11:47

Daily analysis 17.04.2013

16 Apr 2013 11:12

Daily analysis 16.04.2013

15 Apr 2013 11:06

Daily analysis 15.04.2013

12 Apr 2013 10:05

Daily analysis 12.04.2013

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