Daily analysis 21.12.2012

More dark clouds on the horizon regarding the Fiscal Cliff. Voting on Boehner's “Plan B” canceled due to lack of Republicans support. After relative positive session on U.S spot market, the S&P 500 futures is loosing ground with 1.5% slide . EUR/USD still above 1.3200 level, and PLN record strong around 4.0600. Hungarian perspective rating hike and good macro data supported the zloty on Thursday.

Najważniejsze dane makro (czas CET – środkowo europejski):

• 10.00 CET: retail sales in Poland
• 10.00 CET: unemployment rate in Poland (GUS data)
• 15.55 CET: University of Michigan index (final reading)

More bad news concerning the Fiscal Cliff.

Another time U.S fiscal problems getting market attention. Undoubtedly the situation is getting more serious and different interests regarding the issue can result in significant consequences. Yesterday John Boehner wanted to proceed the “Plan B” voting which included tax increases for Americans earning more then 1 million USD a year. Obama had earlier told that he would have veto the plan if the House of Representatives accept it (which was expected because Republicans have majority in the Lower House). The President's proposal is more sever for high earners and includes families with income over 400k USD. However, the voting regarding Boehner's proposal was canceled in consequences of his own party lack of support. The most radical Republicans reject any tax increases for the wealthiest and didn't want to give the green light for the House Speaker offer. Earlier the market speculated that it was a kind of Boehner trick to vote the proposal to kick the ball on the Democrats' side and at the same time to discipline the conservative wing of GOP (and later push the limit under the million toward the President's limit) When the vote cancellation info hit the wires the S&P 500 futures contract slumped by around 2%. The negative reaction was also visible on EUR/USD, but the move was not as significant as on the equities (around 40 pips). Political analysts (in today's FT) speculate that the situation is getting much more serious. Boehner can now resume the negotiations with Obama but his position will be much weaker. He does not have The House acceptance on his “Plan B” and at the same time he can be loosing support inside the party regarding his tactical failure. There are much more opinions that there is increasing probability the we will fall of the Cliff and only the automatic tax increases and negative market reaction will push politicians to act in responsible way.

What will market do? Possible scenario.

The equities slide is natural reaction. The fiscal tightening will result in significant consumption slowdown and return of U.S recession fears It will cause lower investments in corporations, workforce reductions, unemployment rise and etc. Regarding that scenario the risk appetite decreases and investors move to safe haven assets (USD, JPY, U.S and German Bonds). On the other side there is still FED which is not able to reduce all the negative consequences but will be trying to fight the issue with more monetary easing (and it is the reason why we observe calm reaction on the single currency). In my opinion if we really observe the automatic fiscal tightening the pressure for USD appreciation will be much stronger and in result we can see the EUR/USD slide even under 1.3000.

4.05 last minute move ?. Will the Cliff weigh on PLN?

PLN had another strong session yesterday. The zloty was stronger thanks to better then expected GDP final reading from the U,.S and optimist regarding American housing market. Polish currency also got boost from Fitch's Hungary perspective rating increase from negative to stable. All positive macro data data however, will not be able to help PLN if the Cliff issue is not resolved. The good indicator will be S&P 500 contract. I think that we can see quite turbulent period around Christmas and New Year's Eve.

Today we will get retail sales and unemployment from Poland. The data will not impact the PLN which is mainly focused on global issues.

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

Technical analysis EUR/USD: another failure to break 1.3300 will increase the chances for the bears attack. Sliding under 1.3150 can spur a sell off and profit taking which can result in fast move toward 1.3000. On the other hand come back above Thursday's close (1.3244) can strengthen the bull side.

Technical analysis EUR/PLN: technical situation has not changed much. The downtrend still dominates and was confirmed yesterday with new low at 4.0540. The target for following days is around 4.03-04. However the comeback above 4.0800 will be the signal to close the short positions.

Technical analysis USD/PLN: is still in strong downside trend. Only the comeback above 3.1000 should suggest to reduce the short positions. The successful test of 3.05 can result in fast drop to 3.02.

Technical analysis CHF/PLN: yesterday's slide to 3.3600 suggest that the falling trend will be sustained and we will be able to test 3.3300 soon. The upside risk is possible only when we break 3.3900.