Daily analysis 19.11.2013

The EUR/USD has been trying to generate a bullish move, but without strong signals the attempt has not brought any significant results. William Dudley relatively hawkish statements. Voting on Yellen nomination. German ZEW reading and Bernanke speech. The zloty is slightly stronger on the EUR/USD recovery.

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

• 11.00 CET: ZEW from Germany (survey 54 points).
• 01.00 CET: (Wednesday night) Ben Bernanke speech.

Around 1.35. Dudley. Yellen. ZEW

In the recent 24hrs we had a few attempts to break above 1.3520-30 levels on the EUR/USD. It is an important mark concerning the technical analysis. If the euro-dollar succeed to trade above mentioned range, it can give an opportunity to a significant jump (even around 100 pips) and, moreover, give an opportunity to end the correction caused by the record low Eurozone inflation, ECB rate cut and solid data from the US.

Some investors anticipated that William Dudley (New York Fed President, always with the right to vote, strongly in favor of QE) would be dovish enough to lower the dollar during his speech at Queens College, Flushing, New York ( http://www.newyorkfed.org/newsevents/speeches/2013/dud131118.html). However, the case was rather opposite. He confirmed that the “growth in 2013 has been disappointing” but in the next quarters the conditions will improve. “The private sector of the economy should continue to heal, while amount of fiscal drag should subside”. He is also more optimistic regarding the rest of the world saying that “Despite near-term concerns, growth prospects among our major trading partners will improve further next year”. The New York Fed's chief also claims that “As growth picks up, I expect to see more substantial improvement in labor market conditions and a gradual updrift in inflation back towards the FOMC's target rate. Despite that Dudley didn't refer directly to the QE, his statements were pretty hawkish (taking into the account his dovishness). The only argument which can be used by EUR/USD bulls is that recent FOMC economic expectations were overshoot, and therefore this time the case can be similar.

Janet Yellen confirmation process has been pushed forward. As Reuters reports the Senate Banking Committee will vote on her nomination on Thursday (16.00 CET). It is expected that the Committee will give a “green light” especially that 12 out of 22 seats are held by Democrats. Theoretically there can be some issues during the Senate voting (Yellen needs at least 5 GOP senators to be confirmed), but also according to Reuters info “several Republicans say they will place holds on her nomination to win leverage on other issues, ensuring that she will need to get at least 60 votes to be confirmed”.

Summarizing the EUR/USD is trying to regain some ground lost at the beginning of November. The process has been actually quite successful (almost half of the slide was regained). Today a good moment to make new November highs will be the ZEW reading. If it turns out to be higher than expected (and especially if it rises above 57.7 – seven year high) we can observe the EUR/USD to test 1.3600.

The zloty was slightly stronger. Belka

Yesterday, the Polish currency appreciated slightly to the euro and briefly the EUR/PLN dropped under 4.1700 level. However, at the beginning of the European session the move was corrected and it came back to around 4.1750.

There is an interesting interview with Marek Belka published at “www.obesrwartorfinansowy.pl” website. The MPC governor confirms recent optimistic Central Bank projections (higher growth, more investments and lower unemployment in comparison to July's estimates) and the new “forward guidance”. However there is also a controversial statement: Marek Belka claims that if the pension reforms is rejected we can expect recession in Poland and tax rises. Belka did use similar words during the recent conference after the rate decision but it rather sounded as a slip of the tongue than his actual stance. According to the government estimates the pension reform should give around 2 billion euro savings, which is 0.5% of the GDP. The central bank estimates that the growth in 2014 will be 2.9%, so how 0.5% savings or more spending can result in pushing Poland to both recession and tax hikes?

Summarizing, the zloty should remain in the narrow range. It is more possible that we can fall below 4.16 per the euro than rise above 4.20 to the common currency, but for such apperciation we need a strong monetary impulse (example from the Federal Reserve).

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

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