Daily analysis 19.04.2013

On Thursday we had a pretty even session on EUR/USD (currently again around 1.3050). Some interesting remarks from hawkish regional FED presidents. At 13.30 Jens Weidmann holds a conference in Washington DC. The pound again around 1.5300. Polish zloty was fairly unchanged despite worse-then-expected industrial production data.

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

• 13.30 CET Weidmann conference (Bundesbank chief and ECB member)
• No major macroeconomic data in the calendar

Still around 1.3050 on the EUR/USD. Lacker, Bullard, Kocherlakota on falling inflation and additional accomodation

Yesterday session was rather emotion free. The EUR/USD tried to attack the recent lows around 1.3030 (unsuccessfully) and a moved toward 1.3100 (then bounced lower). The market was also fairly resistant to the incoming data. Worse-then-expected readings form the U.S. economy (Conference board leading indicators: minus 0.1% vs 0.1% gain expected) and Philadelphia Fed also didn't spur much action (weak economy – more QE (dollar bearish) is leveled by risk off sentiment (greenback bullish)).

The Bloomberg published some interesting statements form regional FED presidents. They currently don't have a right to vote, but two of them are regarding as hawkish (not eager to expansionary monetary policy) what increases the value of their opinions. Jeffrey Lacker said that “If inflation looked like it was going to sag further on a persistent basis, I would certainly consider stimulus for the purpose of bringing inflation up to target, adding he doesn't see an imminent disinflation risk”. James Bullard of St. Louis claims that “we should defend the inflation target form the low side”. In the same direction is heading also Minneapolis Fed President Narayana Kocherlakota.

The statements were nicely summarized by Josh Feinman, chief economist for DB Advisors, the Deutsche Bank AG asset manager, who says that “The Fed is missing its dual mandate on both sides – unemployment is to high, and inflation is to low”. He also adds that “This simply makes it more likely the Fed will stick with the program for a while, and talk of scaling back sales this summer is diminishing, partly because of the inflation data”.

Going further it is possible that we will witness a real culmination of all asset purchase programs (fully working in Japan, in the U.S and also possible additional in the U.K with the new governor). It can put a higher pressure on JPY, GBP and USD. On the other side of the trade (bullish) there will be EUR, AUD (if the commodity selloff stops) and EM currencies (MXN and PLN).

Around 13.30 CET there is expected a press breakfast with Jens Weidmann, ECB member and Bundesbank governor. It will be interesting whether he makes any remarks to the Wall Street Journal Q&A where his words were interpreted as pretty dovish (in my opinion it was an overstatement, what I tried to explain in Thursday's analysis). If Weidmann clears his answers then we can expected a significant rebound on EUR/USD.

The pound is coming back to 1.53

Published yesterday retail sales data in the U.K was in line with expectations what allowed the sterling to bounce back toward 1.5300 level. There are also no major changes on the GBP/PLN where the base case scenario remains the trading around 4.80.

Weak industrial production but the bonds and the zloty remains strong

Thursday's industrial production readings were not really optimistic but the difference to estimates was to small (minus 2.9% vs survey minus 2.2%) to significantly weaken the PLN. It is worth to mention the falling bond prices and FRA contracts which are suggesting more rate cuts. According to the recent MPC members statements it is possible that we can even see 50 bps decrease in June. I don't expect any major changes on the PLN today. The base case scenario is still 4.10-4.13 range trade.

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

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

Overall technical situation on the analyzed pairs:

We are in a pretty important moment on the EUR/USD. Falling under 1.3000 can provoke a slide toward 1.2700 and breaking out above 1.3150 supports a scenario with move up to 1.3300. The Polish pairs are sill in trends started two weeks go.

Technical analysis EUR/USD: 100 pips slide on Wednesday pushed 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 on Wednesday 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.