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Daily analysis 21.08.2013

21 Aug 2013 12:07|Marcin Lipka

The rise above 1.3400 on the EUR/USD. More turmoil in some South East Asian EM economies. Today we have the “Minutes” and tomorrow PMIs. Solid data from Poland, Kotecki's remarks on Polish zloty and more rumors regarding Rostowski dismissal.

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

  • 20.00 CET: Fed releases minutes from Jul 30-31 meeting

The EUR/USD rose over 1.3400. EM problems. Minutes and PMIs

On Tuesday the EUR/USD continued its strong performance and moved above 1.3400 level. The whole “operation” was relatively calm (no rapid jumps) and took most of the European session. There were several reasons behind the rise, although none is fully certain. In conditions when there is lack a of macroeconomic data or remarks from central bankers investors usually speculate what caused the move. Firstly, there was a capital outflow from EM economies and some of the capital returned to safe haves – the euro (the EUR is again the safe haven?). Market participants claim that some of the carry trade has been done in the euros, so when the conditions for “carry” had deteriorated some of the positions has been inverted. The second reason is the EUR/USD situation. We were hovering close to the 6-month highs for several days and before the important economic data (“minutes”, PMIs) a number of investors didn't want to risk too much and so they closed some of the EUR/USD shorts (that's why the move was fairly calm, cause the procedure was divided in parts). Additionally when we moved above 1.3400 stop losses were activated, and the rise was pushed further toward 1.3450. Lastly the market also had in mind the Monday's Bundesbank comments which diminish the probability of any ECB rate cuts (combined with the overall expected EU economic rebound).

The EM sell-off still continues. The market has been speculating on Indian Central Bank FX intervention to support the local currency. Yesterday Turkey also unexpectedly raised its benchmark rate by 50 bps. The Financial Times (“Turkey raises rates to stop lira's slide amid EM turmoil”) reports that Ankara has an annual current account deficit around $55 billion (6% GDP). To finance the shortfall it needs around $5 billion in portfolio capital inflow (taking into account the weak FDIs). However, “FT” cites William Jackson of Capital Economics who claims that Turkey attracted only $6 billion which were invested in bonds and stocks during the 1st half of the year. That was probably the main reason why the central bank increased the rates (besides high inflation). On the other hand tighter monetary policy put pressure on the growth which can start the vicious circle (more in the yesterday's commentary). The only encouraging data is Turkey's foreign reserves which stand at around $140 billion and quadrupled in the last decade.

Today the market will be focused on the “minutes”. The market expects that the Fed members were pretty dovish during the last meeting discussion (in line with the statement) and would not directly suggest tapering. Additionally we can get some details regarding a modification on forward guidance (lower threshold for the unemployment?). It is also possible that FOMC discussed on the hypothetical pace of winding down the QE ($10 billion should be dovish for the dollar, cause it would mean the tapering can be very slow).

Summarizing the dollar is still under pressure, but most of the bearish news should be already priced in. Therefore I don't expect that we can reach 1.35 after the “minutes”. On the other hand a possible downward pressure is also limited due to Thursday's PMI data (should be fairly bullish for the euro).

Solid output. Kotecki on the zloty. More rumors on Rostowski

According to Polish Central Statistical Office (GUS) the industrial production rose 6.3% y/y. The data was not only much better than expected (5.3% median estimate), but also the reading truned out to be the strongest since Q1 2012. It helped to push the EUR/PLN pair lower which also coincide with EUR/USD surge.

Regarding the Polish zloty expectations it is worth to cite chief Finance Ministry economist Ludwik Kotecki. He told TVN CNBC (quotes from Polish PAP) that “Fundamentally in such conditions it [the PLN] can move only one direction: slight appreciation, and I expect it”. Kotecki also claims that the government confirms its 2.5% growth projection for 2014, but the inflation can be a bit lower then previous 2.4% estimation.

On Tuesday evening we had another “Rostowski dismissal story”. Polish “Newsweek” reported on its website that Finance Minister and deputy Prime Minister resigned and Tusk considering this decision. The government chief denied that rumors on Twitter shortly after the message hit the wires. The Finance Minister told PAP in the morning that he didn't know about the “storm in a teacup” because he went to bed at 10 pm.

Summarizing the zloty will be waiting for the Federal Reserve minutes. We should be moving in the 4.22-4.26 range. Another reports on Rostowski will be probably ignored unless they come from valid sources (government officials interviews).

Expected levels of PLN according to the EUR/USD rate

Range EUR/USD 1.3250-1.3350 1.3350-1.3450 1.3150-1.3250
Range EUR/PLN 4.2200-4.2600 4.2200-4.2600 4.2200-4.2600
Range USD/PLN 3.1700-3.2100 3.1400-3.1800 3.2100-3.2500
Range CHF/PLN 3.4200-3.4600 3.4200-3.4600 3.4200-3.4600

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

Range GBP/USD 1.5250-1.5350 1.5350-1.5450 1.5150-1.5250
Kurs GBP/PLN 4.8500-4.8900 4.8700-4.9100 4.8300-4.8700

The EUR/USD is still bullish. All Polish pairs are in bearish trends but some of them are getting closer to generate a buy signal

Technical analysis EUR/USD: we moved above 1.3400 which should be a confirmation of the bullish trend. The target is 1.3700 now. The main support and pivot point is still 1.3200, but if the EUR/USD rises above 1.3500 the support/pivot will be moved to 1.3300.


Technical analysis EUR/PLN: the trend is bearish until we break above 4.26 level. According to AT the current value should be used to open short positions with the target around 4.17 and in extension 4.10. On the other had if we rise above 4.26, the buy signal will be generated with the target around 4.35..


Technical analysis USD/PLN: the trend is still bearish until we rise above 3.22. The current level should be used to open short positions. On the other hand if we move above 3.22 the buy signal should be generated with the target around 3.39.


Technical analysis CHF/PLN: the trading around 3.40-3.,45 should be fairly neutral for the pair. If we slide under 3.40 the sell signal should be generated. Contrary if the pair rises over 3.45 the buy signal is generated with a target around 3.52.


Technical analysis GBP/PLN: we are getting closer to generate the buy signal (after breaking 5.00) with the target around 5.10. Staying under 5.00 still prefers the short positions.


21 Aug 2013 12:07|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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