Daily analysis 22.07.2013

We are opening around 1.3150 on the EUR/USD. Abe, as expected, secured a victory in the upper house of the parliament. Weaker then previously estimated GDP growth in the U.S. is putting pressure on the dollar? Interesting interview with professor Gomulka. The zloty is still taking advantage of more dovish Bernanke.

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

• 16.00 CET: Existing home sales in the States (survey: 5.25 million)

Positive sentiment. Japan. Q2 GDP growth in the US

At the beginning of the European session the EUR/USD is holding around pretty high levels – 1.3150. We had also a positive opening on peripheral bonds where yields dropped a few basis points. Today the Eco calendar is virtually empty with only one macro report – existing home sales from the US. Taking into the account pretty good start we can try to move over 1.3200 as the day progresses. Investors were rather calm after the voting results were published in Japan. The Prime Minister Shinzo Abe party with a small coalition partner have won the majority in the upper house of the parliament. The yen gained some value during the Asian session but then the rise was halved. In the long run the Japanese currency should remain under pressure from expansionary monetary and fiscal policy.

In the recent days there have been many opinions that US economy had expanded in the Q2 much slower than previously expected. In that context it is worth to point out two articles in the “WSJ”: U.S. Growth Outlook Stuck in Neutral” and „Fed Tapering Data Dependent and Data Says Not Yet”. Authors note that in June estimates for the Q2 growth was 1.9%, whereas in July it was reduced to 1.5%. Economists were also disappointed by the last retail sales results and restaurant performance (it can suggest that customers are tightening their belts). Overall the data is not so bad (housing is still booming, unemployment is dropping), but regarding recent Bernanke statements that the economic data will be a crucial element which can push the Fed to start tapering the revised expectations can put a significant pressure on the dollar.

Summarizing we should have pretty laid back session today. We can expect an attempt to move over 1.32 on the EUR/USD. If the probe is successful then a rise another 50 pips can be pretty quick.

We are getting closer to the strong support on the EUR/PLN. Professor Gumulka budget issues

In the recent days we have a clear evidence how the currency market works and what factors are shaping the Polish zloty. Despite an intensive budget deficit discussion and some political issues the zloty is quickly gaining value. The only element which is supporting the PLN is a higher possibility that QE tapering will be put forward a month or two. However, there is a moment when the local issues can put more pressure on the local currency (early election, no rebound in the economy during the second half of the year and etc.). In such scenario the pressure on PLN can outweigh the local global sentiment.

Coming back one more time to the budget deficit it is worth to listen Professor Gomulka interview on TVN CNBC (www.tvncnbc.pl). He is one of the most respected Polish economists and an expert on the public finance. On Friday he said that in 2008 there was a will to proceed fiscal reforms (he was deputy minister of finance at that time), but Prime Minister Donald Tusk decided not to make any changes because he was frightened that Law and Justice party will benefit from reforms and Civic Platform will lose the next election (in 2011). It is another example that politics should be separated from the fiscal issues. The problem was perfectly solved in Chile where the central budget is prepared by economist (kind of idea like MPC members), with 1% surplus. Economists also make mistakes, but they are not under political pressure. It results that Chile has only 12% debt to GDP ratio (Poland 55%), S&P rates it AA- (Poland A-). At what is more important the unemployment is around 6% (in Poland it is around 12%).

I don't expect any major changes on the zloty today. We should stay around 4.22-4.25 on the EUR/PLN. If the market tries to slide toward 4.20.4.22 level, the attempt will be probably unsuccessful.

Expected levels of PLN according to the EUR/USD rate

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

The EUR/USD is still bullish. All Polish pairs are in bearish trends.

Technical analysis EUR/USD: longs are still preferred on the EUR/USD. The first target is 1.32 and another is around 1.33. Alternatively the slide under 1.2950 gives a sell singal.

Technical analysis EUR/PLN: we have reached the first target around 4.22. If the strong support around 4.20-4.22 is broken then the EUR/PLN can slump even toward 4.10-4.13. Alternatively the rise over 4.28 is a buy signal.

Technical analysis USD/PLN: A fall under 3.28 was a sell signal. The USD/PLN target is 3.18-3.14 now. A comeback above 3.30 again favors bulls.

Technical analysis CHF/PLN:the first target was reached at 3.42. The strong support is around 3.40. If it falls under 3.40 the next target is around 3.33. Alternatively a rise over 3.48 is a buy singal .

Technical analysis GBP/PLN: the sell signal was generated after sliding under 4.97 with a target around 4.9 and in extension even toward 4.8. Alternatively a rise over 5.04 is an indication of bulls' return.