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Daily analysis 21.02.2013

21 Feb 2013 10:53|Marcin Lipka

Yesterday's FED minutes were much more important then many market participants had previously thought. There is an increasing probability that FED will end its asset purchase program earlier or reduce its value. Due to the FOMC surprising minutes the European PMI data will have a slighter effect on the market. The zloty will shaped by global market sentiment.

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

  • 8.58 CET: preliminary manufacturing PMI from France (survey 43.8)
  • 8.58 CET: preliminary services PMI from France (survey 44.4)
  • 9.28 CET: preliminary manufacturing PMI from Germany (survey 50.5)
  • 9.28 CET: preliminary services PMI from Germany (survey 55.5)
  • 9.58 CET: preliminary manufacturing PMI from Euro Zone (survey 48.5)
  • 9.58 CET: preliminary services PMI from Euro Zone (survey 49.0)
  • 14.30 CET: Initial jobless claims form the States (survey 355k)
  • 16.00 CET: Philadelphia FED form the States (survey 1.1)
  • 16.00 CET: existing home sales form the States (survey 4.9m)
  • 16.00 CET: leading indicators (survey 0.2)

Has the FED changed the trend on risky assets in the medium term?

The central bank's aggressive monetary policy (ultra low interest rates + quantitative easing) causes risky asset appreciation (stocks, commodities, junk bonds, and etc). The side effect of QE is a weaker currency (clearly recently seen on JPY pairs and yesterday on the pound). The evening strengthening of USD was purely caused by the discussion during the recent FED meeting and published at 20.00 CET in the Minutes. The similar situation we had at the beginning of the year (/eng/news/daily-analysis/daily-analysis-04.01.2013 ), but it was not as vivid as yesterday. “Several” (usually 4 or 5 out of 12) participants were suggesting that the Committee should be ready to reduce the amount of the asset purchase due to the economic situation changes or the overview of its result. “A number” (also usually 4 or 5; the same group as in the previous statement probably) of members would like to overview the the effectiveness and the costs of the quantitative easing and therefore decide whether to reduce or withdraw the asset purchase “before it judged that a substantial improvement in the outlook of the labor market had occurred”. Also “several” members claims that withdrawing the stimulus “too soon” can result in potential costs and should be continued “until a substantial improvement in the labor market had occurred”. A few (usually 2 or 3) participants recalled examples when a stimulus was withdrawn too early which had a “asverse effect on economic growth, employment, and price stability. Summarizing it is much more hawkish message that the marked had expected. It also significantly move the moment when the QE can be ended (from 1st quarter of 2014 to even 3rd or 4th of 2013). Additionally the FED may suggest that it will decrease the amount of easing before 3rd quarter . In can change the medium term toward the dollar. The event was nicely packed in one sentence by Gabriel de Kock, head of U.S. foreign exchange strategy at Morgan Stanley. He told The Wall Street Journal that “The market is saying that it looks like the FED wants to stop asset purchases earlier then people expected just a month ago” I want to emphasize that if nothing changes (i.e. more hawkish news from FED) we can expect the dollar strength in the medium therm and move under 1.3000 fairly fast.

PMIs and Friday's IFO.

While I have been writing the commentary the French PMI has been published. The reading is lower then the survey and it is already putting the additional pressure on EUR/USD. However, even if later the data is in the line with expectations (for example from Germany) it will not probably result in a significant rebound (the news from FED has much stronger magnitude). Until the market receives the new impulses (preferably also from the FOMC but the dovish one) the EUR/USD will be under pressure. I am also not expecting any changes in the sentiment from the tomorrows IFO numbers even if they beat the expectations.

The zloty will focus on the global markets till the end of the week.

As I mentioned yesterday the zloty will be depended on the global issues. Yesterday's minutes will also put pressure on PLN and the 4.1800 level can be tested when the data from Germany and Euro Zone is weaker then expected. If the correction on the U.S equities stays for longer I would also expect that the EUR/PLN will be moving gradually higher. It is also worth to pay attention to USD/PLN cross. It can soar if EUR/USD continues the dive.

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

EUR/USD 1.3250-1.3350 1.3350-1.3450 1.3150-1.3250
EUR/PLN 4.1700-4.2100 4.1600-4.2000 4.1800-4.2200
USD/PLN 3.1300-3.1700 3.1000-3.1400 3.1600-3.2000
CHF/PLN 3.3900-3.4300 3.3800-3.4200 3.4000-3.4400

Technical analysis EUR/USD: the bearish scenario has already started. Yesterday we breached the 50 DMA, 23.6% Fibonacci retracement level and medium term rising trend line (all around 1.3320-1.3300). It is also worth to note that the head and shoulders formation has been fulfilling with a potential range toward 1.2900. Earlier we have a strong support around 1.3080 (38.2% Fibonacci retracement level, highs from December 2012 and lows form the beginning of January) and this is the first target for EUR/USD.


Technical analysis EUR/PLN: nothing has changed on EUR/PLN so far. The base scenario is the range trade between 4.1500 and 4.1900 levels. The break down will result in test of 4.1200 and breakout increases the odds toward 4.2300 move.


Technical analysis USD/PLN: we didn't end the day under 3.1000 and in contrary we moved around 3.1400 in the morning. The breakout from 3.1400 resistance will open the path toward strong move to around 3.25-3.27 ( between 50 DMA and 50% Fibonacci retracement level). The come back to the bearish trend (low probability) is possible after sliding under 3.1000.


Technical analysis CHF/PLN: the breakout from 3.4100 will be a bullish signal with the target around 3.4800 (50% Fibonacci retracement level). The alternative scenario is move under 3.3300 and the opening shorts (low probability now).


21 Feb 2013 10:53|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:

20 Feb 2013 10:01

Daily analysis 20.02.2013

19 Feb 2013 9:52

Daily analysis 19.02.2013

18 Feb 2013 9:57

Daily analysis 18.02.2013

15 Feb 2013 10:35

Daily analysis 15.02.2013

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