Daily analysis 20.05.2013

EUR/USD has been traded around 1.2850. Lack of macro data today can spur a slight correction rebound on the main currency pair. A discussion inside the FED on slowing asset purchase is still valid. Polish rate cut is more possible after Hausner PAP interview.

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

• 23.00 CET: FED member John Williams conference

Consolidation around 1.2850. Wednesday will be crucial for the dollar

The unsuccessful test of 1.2800 level has been quite a set back for the bears. The support was not broken even though the economic data (consumer confidence above the expectations in the U.S) was positive for the greenback. In the current week we have two important days concerning the FED monetary policy. Today we will be able to get some up-to-date opinion from the, so called, dovish FOMC member. He has supported the dollar recently claiming that the asset purchase program can be reduced as early as in this summer. John Williams, although a non-voting member, has been seen as a important player in the QE discussion, because he was a strong supporter of the ultra-easy monetary policy. It will be interesting whether his recent remarks will be confirmed or denied today.

On the other hand on Wednesday the FED will publish “Minutes” from the recent meeting and Ben Bernanke testifies before the Congress. Both events can be pretty important. Regarding the first one we can get some more info on the sentence from the statement that“The Committee is prepared to increase or reduce the pace of its purchases to maintain appropriate policy accommodation as the outlook for the labor market or inflation changes” Maybe the Members will elaborate more on the issues and which part of QE (MBS or bond) purchases will be reduced first. Concerning the Congress meeting I don't expect that the FED chairman will give some direct indications on asset purchase. He will rather praise the lower unemployment (positive for the dollar) and maybe give some remarks on valuations of some assets (for example yield on junk bonds under 5%). It can be also positive for the greenback.

Hausner o rates. EUR/PLN around 4.17

We are getting closer to the June cut. In an interview for PAP Jerzy Hausner said that” Poland should end rate cuts by July”. He added that “ 50 bps reduction is possible, but less probable then either 25 bps cut or no change”. The MPC member also emphasized that “he is committed to the thinking that our inflation target is 2.5% and we need to conduct policy to achieve it”.

Overall he seems to be quite dovish and therefore I would see around 70% of 25 bps rate cut in June. As I mentioned on Wednesday he is currently a crucial person in the Committee (a kind of bridge between doves and hawks). His view is mostly shared by governor Belka (it was clearly seen during the 50 bps cut in March).

The base case scenario is still range trade for the EUR/PLN between 4.15-4.20. I don't expect any major changes today, and see the trade to be around the current levels as the day progresses.

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

No changes on the technical analysis except the CHF/PLN. The target is currently 1.2800 on the EUR/USD and in extension 1.27. On Polish pairs: USD/PLN and GBP/PLN – bullish; EUR/PLN and CHF/PLN range.

Technical analysis EUR/USD: the EUR/USD reached its first target on Wednesday – 1.2800. The current rebound however should be only a correction and the further slide is expected toward 1.2700. Alternative scenario: longs above 1.3000 (low probability.

Technical analysis EUR/PLN: the base scenario is still the range trend (4.12-4.20). Alternatively the breakout above 4.20 should generate fast move toward 4.25-4.30.

Technical analysis USD/PLN: the 3.27 target is still in place with extension to 3.3300. A comeback to the sliding trend is possible after falling below 3.18 (low probability currently).

Technical analysis CHF/PLN: we moved back to the range trade (3.33-3.41). A sell signal should be generated again after sliding below 3.3300.

Technical analysis GBP/PLN: the short term target for the pair is a move toward 5.0000 and an attempt to change the mid term trend to rising. The breaking above 5.0000 should initiate the move toward 5.1000. The alternative scenario is a move under 4.85 where bears should take the lead.