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Daily analysis 18.09.2013

18 Sept 2013 11:42|Marcin Lipka

Finally the widely expected Wednesday has arrived. What is Federal Reserve main concern? Plenty of FOMC members scheduled their speeches in the following days. The Polish zloty is slightly weaker in anticipation of the Committee decision. Early afternoon we have the manufacturing data.

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

  • 14.00 CET: Industrial production from Poland (survey: +2.7%)
  • 14.30 CET: Housing Starts and building permits form the US (917k and 950k respectively)
  • 20.00 CET: Interest rate decision from the US (survey: no change at 0.25%)
  • 20.00 CET: Fed statement to be released. Market consensus is the cut of QE by 10 billion. The Bloomberg survey claims, however, that the tapering will be only 5 billion on the MBS. The UST purchase will remain unchanged. In the statement we should also get the information whether the forward guidance is modified
  • 20.00 CET: Fed's economic projections. The market will be paying attention to the GDP growth estimates for the following years (expected to be revised downward) and a calendar showing first monetary tightening (In June the Committee expected to raise the benchmark in 2015). It is important whether it is modified and put further in the future

Finally Wednesday. If market fails to understand

In recent hours we have virtually no change on the EUR/USD. Investors are patiently waiting for the Federal Reserve info. The most popular currency pair remains at around 1.3350 and should stay around this levels until the Statement is released. Other assets classes are showing pretty positive market sentiment – stocks are rising, UST and peripheries yields are stable and the crude oil is falling.

In the recent days I have presented probably all possible scenarios regarding the Fed's decision. At this moment it is worth to think about what Ben Bernanke and his fellows want to achieve after the decision. Their main goal is to keep the treasury market pretty stable. The May events, when Fed's chief suggested tapering, put a significant pressure on the bonds (also globally) and can translate into the future slower economic expansion. Therefore, this time, the Fed's message should be pretty close to the market consensus. On the other hand the statement cannot be too dovish (to prevent bubbles on any asset classes). In result the Fed will be successful if the market reaction is as balanced as possible.

However, if the market fails to understand the FOMC message, the Federal Reserve has an emergency exit. In the following days we have a wave of speeches from the Committee members. As Michael S. Derby from the “WSJ” points out (“After Fed Meeting Officials Have Heavy Speaking Schedule”) it can be used to calm the markets in case of volatile reaction. Only on Friday four FOMC members are scheduled to talk – Esther George (voting, most hawkish), James Bullard (voting, dovish, concerned about to low inflation), Naryana Kocherlakota (currently dovish, with voting rights in 2014) and Daniel Tarullo (member of the Board of Governors, dovish). On Monday William Dudley is suppose to speak (third the most important person in the Fed, dovish, close ally of Bernanke's policy). Are all the speeches suggest that the FOMC is suppose to announce something unexpected? Rather no, I would see it as a backup in case the market creates to much volatility.

Summarizing until the Fed announcement we should enjoy a calm market. Later all depends on the FOMC message, Bernanke conference and investors approach. Overall during such crucial decisions the best option is to stay on the side line.

The zloty is slightly weaker. Industrial production data

The zloty is not able to “withstand” the pressure before the FOMC decision and weakened slightly toward 4.22. However, I don't see this move as a sentiment shift or any major trend reversal (of course if the Fed doesn't sound to hawkish in the evening).

Today we have the manufacturing report. The market consensus is around 2.7% y//y. The data will be rather neutral for the zloty unless it deviates more than one percentage point either on the down side (bearish for the zloty around 0.25% move) or upside (bullish also around a quarter of percentage point). Moreover when we will be approaching the Fed decision most of the changes should be leveled off.

Summarizing the morning weakness of the Polish currency should not translate into its performance after the Committee decision. The zloty, before the Fed's statement, should be traded in the 4.21-4.23 range per the euro.

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

Range EUR/USD 1.3250-1.3350 1.3350-1.3450 1.3150-1.3250
Range EUR/PLN 4.2000-4.2400 4.2000-4.2400 4.2000-4.2400
Range USD/PLN 3.1600-3.2000 3.1300-3.1700 3.2100-3.2500
Range CHF/PLN 3.4000-3.4400 3.4000-3.4400 3.4000-3.4400

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

Range GBP/USD 1.5850-1.5950 1.5950-1.6050 1.5750-1.5850
Range GBP/PLN 5.0100-5.0500 5.0300-5.0700 4.9900-5.0300

The comeback over 1.3300 will negate the last week's sell signal. Mix on the zloty pairs.

Technical analysis EUR/USD: moving above 1.33 on EUR/USD generates a buy signal. All pairs, but GBP/PLN are in bearish trends..


Technical analysis EUR/PLN: the fall under 4.26 generates a signal toward a range trade between 4.22-4.26. Sliding under 4.22 prefers the bearish positions toward 4.18.


Technical analysis USD/PLN: we managed to reach two targets – at 3.18 and 3.15. If the pair slides under 3.13 we should expect the bearish trend to continue toward 3.05.


Technical analysis CHF/PLN: the comeback under 3.43 negates the buy signal. Now the base case scenario is a range trade between 3.40-3.45. Sliding under 3.40 generates a sell signal with target at 3.33.


Technical analysis GBP/PLN: on the pound there is still bullish trend. Only a slide under 5.00 generates a sell signal with a target at 4.93.


18 Sept 2013 11:42|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 Sept 2013 11:54

Daily analysis 17.09.2013

16 Sept 2013 15:10

Daily analysis 16.09.2013

13 Sept 2013 13:22

Daily analysis 13.09.2013

12 Sept 2013 12:00

Daily analysis 12.09.2013

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