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Daily analysis 21.06.2013

21 Jun 2013 13:06|Marcin Lipka

EUR/USD is close to 1.32 level. Is it time to make another “QE story” to weaken the dollar? Is it going to be the inflation? The Polish zloty is slightly stronger. Not only the Polish MPC likes to surprise the market. Case from Norway.

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

  • No major macro data is scheduled today

Broad sell-off. EUR/USD stabilizes around 1.32. Is the market going to make another story to weaken the dollar.

Yesterday we had one of this days which will be remembered for a longer time. Actually all assets were sliding – stocks, bonds, commodities and almost all currencies but dollar. Investors were thrilled with gold slump (lowest level in almost three years) or rising (falling in value) bonds yields of EM economies (Polish 10-year bonds jumped 40 bps which equals more then 3% decrease in value). In the overall turmoil the EUR/USD was relatively solid. It has fallen 200 pips, but most of the move came for the dollar strength rather then euro weakness. Today we should have much calmer market, but investors have to pay attention to other side events (money market crunch in China (probably will be quickly solved by the PBOC) or some political issues in Greece).

In such moments it is wort to think about another scenario which will be played by the market when the dust settles. A hing we can get quite quickly looking at the recent Fed projections and the statement (in that context it it is worth to watch video interview with Gavyn Davis on FT http://blogs.ft.com/gavyndavies/ ). It looks that both in 2013 and 2014 the inflation (also the core one) is lower then previously forecasted and falls below the Fed target. Moreover in the statement it is clear that James Bullard (rather considered to be a centrist, maybe slightly dovish) wanted the Committee to “signal more strongly its willingness to defend its inflation goal in the light of recent low inflation readings. Is it possible that the market will try to make another “story” (similar to the last one regarding expected more dovish Bernanke stance) and build the expectations that the Federal Reserve will extend the full QE beyond September? In my opinion it is pretty possible. Some indication concerning the “story” should be build as early as next week (around two weeks before the “minutes”).

Summarizing, currently the dollar should be the most favorable asset. However taking into the account market swings it is possible that we will build another “story” to push the dollar lower.

Calm trading on the zloty above 4.30. Norwegian case

The EUR/PLN was not able to beat the record high levels reached on Thursday morning but the closing was still quite bullish (around 4.34). Today we have a slight correction (in line with the bond market). The sentiment on the PLN will still be mainly depended on the EM situation. In case of some sentiment improvement the NBP intervention is also possible. The Polish central bank likes to react when the market stabilize (then the intervention effect is much more visible and long lasting.

Yesterday we had quite an interesting case in Norway. It's local currency slided around 4% to the dollar (much more then the zloty). It was not actually caused by the capital flow to the USD, but rather by quite dovish statement from the local Central Bank. Cited by the Financial Times (article: “Norwegian krone suffers as Norges surprises markets”) experts claim that they were really surprised and they were expecting rather hawkish then dovish statement (taking into account also the Fed stance).

Summarizing the PLN is still a hostage of the global EM sentiment. It's performance will be strongly depended on the overall investment climate toward developing economies. When emotions calm down the NBP can push the EUR/PLN a bit lower to keep the zloty in a narrower range.

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

EUR/USD 1.3150-1.3250 1.3250-1.3350 1.3050-1.3150
EUR/PLN 4.3000-4.3400 4.3000-4.3400 4.3000-4.3400
USD/PLN 3.2500-3.2900 3.2200-3.2600 3.2900-3.3300
CHF/PLN 3.5000-3.5400 3.5000-3.5400 3.5000-3.5400

Spodziewane poziomy kursu GBP/PLN w zależności od GBP/USD:

GBP/USD 1.5450-1.5550 1.5550-1.5650 1.5350-1.5450
GBP/PLN 5.0100-5.0500 5.0300-5.0700 4.9900-5.0300

Overall technical situation on the analyzed pairs

The EUR/USD is close to the key support at 1.32. All PLN pairs have come back to the rising trends. It is expected that the volatility will last for longer.

Technical analysis EUR/USD: The slide under 1.32 will give signal to close the longs or open shorts. The next support is expected around 1.30. Alternatively the strong resistance is set around 1.34.


Technical analysis EUR/PLN: the rise over 4.28 is a bullish signal. Breaking 4.32 should be then the next target is set around 4.40. Only the slide under 4.20 ends the recent rising trend.


Technical analysis USD/PLN: the rise over 3.22 is a strong buying signal. The target for USD/PLN is around 3.30. If the PLN weakness continues, then the next target will be around 3.35 and in extension 3.5.


Technical analysis CHF/PLN: the target for the pair is currently 3.5 and in extension 3.6. Only a fall under 3.40 ends the rising trend.


Technical analysis GBP/PLN: rising above 5.02 was a buy signal with a target around 5.10. Alternatively a fall under 4.95 should be a selling opportunity.


21 Jun 2013 13:06|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.

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