Daily analysis 22.02.2013

The EUR/USD has been under pressure since the hawkish FED minutes. Yesterday it received another bearish news – weaker then expected PMI data from Germany. Today investors will closely watch the IFO and will try to evaluate the outcome of Italian election. Fitch Ratings upgraded the Polish rating outlook to positive. The zloty is stable in the morning and is trading around 4.1600.

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

• 10.00 CET: IFO from Germany (survey 104.9)

Weaker then expected PMI worsen the EUR/USD situation. IFO is in focus today and Italian election during the weekend.

EUR/USD will probably remain under pressure in the foreseeable (after the Wednesday's minutes; more about that: (/eng/news/daily-analysis/daily-analysis-21-02-2013 ). It was also pushed lower by weaker then expected PMI data from the Germany and France. The only bright spot was that the Markit Flash Manufacturing Purchasing Index from Germany exceeded first time in a year the 50 mark, which separates expansion from decline. However, it was not enough to lift the common currency and in consequence we fall to 6 weeks lows around 1.3160. The euro dollar did fall since 20.00 CET on Wednesday around 150 pips. The similar situation in the past (macro signal from a possible change in the monetary policy and quite unfavorable technical situation often caused trend change or at least a deep correction. It is worth to note it in case of a possible correction rebound. Last week investors were concerned about the Italian election. In contrast the recent days seems to be relatively calm (especially on the debt market) regarding the issue. It is hard to judge whether it is the ban on poll publication or just market decided that the previous fear had been overstated and they would rather stick to the most probable scenario – Pier Luigi Bersani and Mario Monti coalition. Personally I would rather not try to guess the result of the voting especially that we experience lack of data and there were many examples of unpredicted results during the previous elections. Today the market is waiting for IFO report. The index which describe business climate in Germany is expected to rise toward 105 mark. As I mentioned yesterday I don't expect any sentiment improvement even if the reading is better then expected (low chance to come back even over 1.3250). On the other hand if we get a disappointing report it is possible the we can test the lows around 1.3150.

Positive outlook from Fitch for Poland.

The regional news of the day was rating outlook upgrade from Fitch. It means that the rating agency sees more then 50% chance of increase the actual credit worthiness within two years. Fitch wrote that” Poland has a solid track record of resilience to the Euro Zone debt crisis, despite strong economic and financial link with Western Europe”. It expects that Polish GDP growth will be 1.6% this year and “the gap to shrink to 3.2 percent this year and 2.7 percent in 2014”. After the message hit the wires the PLN strengthened around 0.02 PLN to 4.16 per euro and yields on 10-year bonds finish the day under 4.00% mark. On Monday investors will get the retail sales data from Poland. It will be the last major economic report before the March MPC rate decision. Weaker reading can put pressure on the zloty and increase the odds for the cut. On the other hand a better then expected data (similar to the recent industrial output) can activate more hawkish part of RPP and the committee can leave the rate unchanged.

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

Technical analysis EUR/USD: the strong break down of 1.3320-1.3300 ( 50 DMA, 23.6% Fibonacci retracement level and medium term rising trend line) resulted in 150 pips slide to 1.3160. The head and shoulder formation is also confirmed by the move with a target around 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: the move above 3.1400 level was a strong bullish signal with a expected target around 3.25-2.27 ( between 50 DMA and 50% Fibonacci retracement level). The comeback to the slide possible only after falling under 3.1000 (low probability now).

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).