Daily analysis 22.03.2013

Cyprus problems has still been in focus. There are another “healing” ideas regarding the island banking system. Weak data from Europe. The GBP/USD is staying close to yesterday levels. Today we have Ifo from Germany and retail sales from Poland. The zloty is weaker again.

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

• 10.00 CET: Retail sales from Poland (survey: minus 1.3% m/m and + 0.7% y/y)
• 10.00 CET: Ifo from Germany (survey 107.8)

Cypurs; Thursday's PMIs; IFO

We still have an unresolved case in Cyprus. Every day there are new ideas regarding the troubled island (extension of credit line from Russia, pension savings as a collateral; deals on exploration gas fields). Yesterday, after the ECB warnings concerning a blockage of ELA (Emergency Liquidity Assistance), there has been a wide discussion on a proposal of, so called, a “bad bank”. As today's “Journal” reports the healthy assets (loans with high credibility) of Liaki Bank (called also Cyprus Popular) will be moved to Bank of Cyprus (larger institution) . The questionable assets will be moved to the bad bank. Benefits of moving healthy loans to a single institution are certain – less risk of default. On the other hand the special “Asset management company” (similar as in Spain) will acquire the bad assets with large discount by capital provided from private investors. The “company” will be able to issue bonds which could be guaranteed by government future gas exploration income. In that case the debt burden will be split in time, private investors will take a part of the risk, and Cyprus will not have rise 5.8 billion but much less. Is that idea a valid one or possible to implement we will know pretty soon, because the Mediterranean island will enjoy ECB liquidity only until Monday. If the weekend negotiations fails, as Reuters cites an anonymous UE official, Nicosia will have to return to its own currency and significantly devalue it. It is worth to look at Thursday's PMI data. The report was much worse then expected (for the Euro-Zone almost 2 points lower then in the Bloomberg survey), what can be an indication that the rebound will come later then most economists expect. Today we have the German business climate report – Ifo. It will be interesting to observe the result especially that it is highly correlated with ZEW (was better-then-expected) and PMIs (much lower then estimated). We can then evaluate whether the PMIs was just short term dip or a more important warning sign.

The pound is benefiting from better economic data and Euro-Zone turmoil.

The British currency was supported on Thursday by much better then expected data from the retail sales and deepening problems in the Euro-Zone. Today we have no economic reports, so the pound should not change significantly to the dollar. In case of Cyprus solution we can see a rise on EUR/GBP pair (stronger euro, the sterling a bit weaker) and therefore the zloty should be stronger to the sterling.

The PLN is under pressure.

The Polish currency has been weaker on unsolved problems in Cyprus and on U.S equities slide. Yesterday we topped 4.1900 level on EUR/PLN and 3.43 for the Swiss franc. The moves were much stronger on GBP/PLN and USD/PLN (we can see a rising trend on the from the 2nd half of February). The sell off of the zloty can be continued if today's retails sales falls short of expectations (especially when the reading will be negative on the yearly basis). In that case the 4.2000 level will be probably tested. On the other hand the stronger zloty (come back under 4.16) will need a valid solution from Cyprus.

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

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

Technical analysis EUR/USD: after reaching the EUR/USD bearish target (1.2850) we have to wait for the additional signals to evaluate whether the current move higher is only a correction in a sliding trend or a chance to some more significant upside tendency. After falling under 1.2850 we can expect the move toward 1.2700. On the other hand moving upside above 1.3100 should generate the buy signal with a target at 1.3250-1.3300.

Technical analysis EUR/PLN: the buy signal was generated on the pair with the target at 4.23 (50% Fibonacci retracement level). It will be negated if the EUR/PLN falls under 4.1600.

Technical analysis USD/PLN: we are getting closer to the target which was generated in the 2nd half of February (after breaking 3.1400 upside). The target is 3.27 (50% Fibonacci retracement level and the highs of November 2012). The support level is 3.2000 now.

Technical analysis CHF/PLN: similarly to the EUR/PLN the buy signal was generated with the target at 3.4800. The support level for the pair is 3.4000 now.

Technical analysis GBP/PLN: bulls have taken a control of the short term trend. The target for the move is 5.0000. If the resistance fails then there will be also a change on the medium-term basis (from bearish to bullish). The support level is 4.85-4.87.