Daily analysis 20.11.2012

EUR/USD around 1.2800. Reuters claims that Greece will receive all three bailout tranches at once. Downgrading France moved EUR/USD lower, but then the common currency rebounded. PLN takes advantage from the improving global sentiment, and it is currently traded at 4.1300.

Macro data:

• 14.00 CET: Industrial production from Poland
• 14.30 CET: Building permits (USA)
• 14.30 CET: Housing starts (USA)
• 17.00 CET: 17.00 CET: Eurogroup meeting
• 18.15 CET: Bernanke speaks

Greece, a positive character of the day.

Friday's recovery spurred by coming fiscal cliff solution supported the opening of European session on Monday. Good mood was also transferred to the U.S where further boost came from macro data (existing home sales above expectation 4.79M; est. 4.75M). However, news of the day came form Reuters. The agency informed that Greece will receive the bailout money soon. According to unofficial information Eurozone finance ministers will decide today on the aid payment of 44 billion EUR (3 tranches will be combined in one and sent Dec. 5). The funds will be transferred only when Athens adopts "a detailed package of reforms" and the parliaments of the Eurozone countries agree to accept help. Both issues should be passed smoothly. The single currency after these reports has increased by about 40 pips to the 1.2820 level. At the very end of the day the overall optimism was disturbed by reports from Moody's, which downgraded France by 1 notch (from AAA to AA1), and leaving a negative outlook. It was not a surprising decision for the markets, but the EUR / USD dived temporarily, and then during the Asian session returned to levels around 1.2810.

Debt relief or not debt relief...

Later on Monday, Reuters published an outline plan for the Eurozone how to help Greece to fulfill the previously singed bailout criteria (including to lower debt to GDP ratio below 120% in 2020 (originally) / 2022 (after last week's agreement) and the budget deficit to 2% in 2014 (originally) / 2016 (after last week's agreement). Unofficially Eurogroup decided to make a proposal to the private creditors of Greece that they can sell the debt for 25% of the principal value. Money for the redemption of its debt will come both from Greek budget and from... profits made by the ECB, which currently holds Athens' debt in its portfolio. Many market participants are probably wondering how it is possible that a private investor would get only 25% of the lent money, and another (in this case the ECB) can not only the full principal value but also the interest which voluntarily gives back the borrower. Apart from the logic of solution it comes more formal question i.e. "collective action clause (CAC)," which, in brief, states that if the majority of creditors agree to debt restructuring, it becomes effective for all creditors. If that happens it would also apply to securities held by the IMF, EFSF and ECB which, of course, does not want the action to be qualified as a write down of the debt. How this situation will be resolved only depend on the competence of lawyers. If anyone had any doubts about the willingness to help Greece, some Eurogroup members proposed that profits earned by the ECB bond purchase program (SMP that stabilized situation in the debt market at the turn of 2011 and 2012) should be used for the purchase of Greek bonds, and thus reduce the debt to GDP ratio. All of these "ideas" are supposed to reduce the Athens debt by 11 percentage points.

PLN takes advantage of risk on sentiment.

Soaring equities and rising Eurodollar allowed the PLN to strengthen significantly. Late afternoon the PLN appreciated to 4.1250 per euro (two-week lows). Further positive news concerning the fiscal cliff and the Greek issue should also support the zloty and push it to around 4.1000 per euro till the end of the week. Good mood around PLN is also a consequence of the bullish Polish debt market. Yesterday the Ministry of Finance sold 12-year euro denominated debt at record low yields (135 bp above euro mid-swaps). It is expected the Poland till the end of the year will be able to prefinance 20% of its 2013 borrowing needs.

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

Technical analysis EUR/USD: the common currency has a chance to use the opportunity and move higher after breaking the 1.2820 level. If it happens the next resistance level is around 1.2906-1.2918 (23.6% Fibonacci retracement level and 50 DMA). Coming back under 1.2740 will open the way to around 1.2600.

Technical analysis EUR/PLN: the comeback of EUR/PLN to 4.1250-4.1300 should end the upside move. It the Eur/PLN breaks the support of 4.1200 (23.6% Fibonacci retracement level and 50DMA) it should slide further to 4.1000 and then even to 4.0600.

Technical analysis USD/PLN: the bullish trend on USD/PLN is also loosing ground. It ending will be seen when it breaks the 3.1900 level (23.6% Fibonacci retracement level and 50 DMA). The comeback to the rising trend is possible after breaking the resistance level around .3.2700 (200 DMA).

Technical analysis CHF/PLN: to end the bullish trend the CHF/PLN should slide to 3.4000 (downtrend line, 50 DMA and 23.6% Fibonacci retracement level). The long positions should be open only if the pair breaks 3.4650.