Daily analysis 18.07.2013

The EUR/USD is still holding above 1.3100 level. The statement form Bernanke was rather dovish yesterday. Today we are expecting more news from Fed's chairman. Some remarks on the budget deficit. Production data from Poland were above expectations but the market reaction was muted.

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

• 14.30 CET: weekly jobless claims from the States (survey: 345k)
• 16.00 CET: Leading Indicators (survey: 0.3%)
• 16.00 CET: Philadelphia Fed (survey: 8.0)
• 16.30 CET: 2nd day of Bernanke testimony before the Congress

Bernanke statement was rather dovish. Today the 2nd part

It was a good idea to stay away from the market during Bernanke performance. Both bears and bulls didn't have enough willingness to move the EUR/USD, and we ended the day near the opening levels. It does not mean, however, that we didn't get any hints from Fed's Chairman. In line with expectations Federal Reserve chief stressed that QE tapering would depend on the economic conditions. He also confirmed that the interest rates would not be raised automatically even if the unemployment drops under 6.5%. Getting into more details it is worth to cite The Wall Street Journal article “What Bernanke means”. Jon Hilsenrath perfectly described what Fed's Chief wanted to suggest the markets. The author notes that Bernanke focused more on the economic growth threats (its vulnerability to fiscal tightening and weaker global expansion) what can be seen as quite dovish. Moreover the Chairman emphasized that “If a substantial part of the reductions in measured unemployment were judged to reflect cyclical declines in labor force participation rather than gains in employment, the committee would be unlikely to view a decline in unemployment to 6.5 percent (unemployment rate) as a sufficient reason to raise its target for the federal funds rate” (also pretty dovish). At the end Hilsenrath stressed that Bernanke noted a negative implications of too low inflation (dovish sign). It is also worth to note that the Q&A part was rather boring. None of the Congressman pushed Bernanke for more precise answer regarding the QE (like on May 22nd).

Summarizing Bernanke's statement was rather more dovish then expected. Today we have the second day of the hearings. At the beginning of the European session is pretty optimistic so if Fed's Chairmen does not disappoint we can continue to rise on the EUR/USD and fell on US treasuries yields.

The zloty is depended on the Fed

At the beginning I would like to focus on the zloty move after the Fed's chairman statement was released. A chart on the bottom shows EUR/PLN and US 10-year treasuries performance last afternoon. The Polish currency strengthened around 0.02 PLN and the US treasuries yields dropped around 8bps. Additionally the zloty didn't react to the production data despite it was better then expected (3% y/y vs estimates of 1.5% y/y). It confirms that most of the PLN moves are initiated on the base markets.

A wider budget deficit is still heavily commented in Poland. Some government officials are trying to push the blame on the central bank that it didn't cut the interest rates fast enough. Others have also interesting ideas regarding the future monetary policy. The economy minister Janusz Piechociński told today Polish state TV TVP info that NBP “has a room to cut the rate to 1%”. It was pretty strange especially that the MPC ended the easing cycle and according to many institutions (also Ministry of Economy and NBP) both inflation and GDP growth will pick up slowly toward the end of the year.

Today the Polish zloty should be traded around 4.25 per euro. Only in case of stronger moves on US treasuries or the EUR/USD it can deviate more from that level.

Expected levels of PLN according to the EUR/USD rate

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

The EUR/USD is still bullish. All Polish pairs are in bearish trends.

Technical analysis EUR/USD: the EUR/USD moved quite substantially last. It broke many resistance levels and stopped around 1.32. The upside trend dominates now with target at 1.3200 and support around 1.3070. The next support is around 1.2950. If we fall under that level is should generate a sell signal with a target around 1.28..

Technical analysis EUR/PLN: it fell under 4.28 where a sell signal was generated. The target is 4.22 now. Alternatively a rise over 4.32 gives a buy signal again.

Technical analysis USD/PLN: A fall under 3.28 was a sell signal. The USD/PLN target is 3.18-3.14 now. A comeback above 3.34 again favors bulls.

Technical analysis CHF/PLN:the sell signal was generated after falling under 3.48. The target is 3.42 now. Alternatively the rise over 3.52 should be bullish.

Technical analysis GBP/PLN: the sell signal was generated after sliding under 4.97 with a target around 4.9 and in extension even toward 4.8. Alternatively a rise over 5.04 is an indication of bulls' return.