Daily analysis 22.10.2012

The idea of buying back the Greek debt for the money borrowed from the euro zone permanent rescue fund is again on the market.

Friday's session on EUR/USD was pretty stable even though the U.S market ended the day with steep losses. The Eurodollar was able to defend the support level around 1.3000 mark. It was a bullish signal for the investors holding „long positions”. Also Monday's opening in Asia is favorable for the common currency where investors had been able to price the outcome of Spanish regional election. The market was concerned mainly with the results of prime ministers Rajoy's party in Galicia. According to exit polls it won around 40 seats in 75 seats regional parliament which allows to hold the majority ,and what is more important to markets, speed up the request for the bailout.

The idea to buy back its own debt by Greece comes back to the markets. According to Spiegel and Reuters the German finance minister is considering that Greece will borrow money from the euro zone’s permanent rescue fund and buy its bonds. The bonds are traded now around 1/4 its face value so the loan of 1 euro will allow Athens to lower its debt by 4 euros. However, if the scale of the operation is large the debt will get more expensive and the effect will be limited.

In the last day of the week we had another record low yields on Polish 10-year debt. The diminishing inflation pressure and lower CDS will probably still support the trend. The moves on the debt market do not correlate to EUR/PLN value. The main reason for that is upcoming rate decrease which is widely expected in November. The will be then quite a fight on the currency market between debt investors who are still buying Polish debt and portfolio managers who book some profits on carry trade and closing the positions on PLN.

At 14.00 CET Polish CPI will hit the markets. According the Bloomberg CPI excluding energy and food was at 1.9% in September. If the reading is lower then estimates I expect the PLN to get weaker (higher probability of lowering the benchmark rate in November). PLN expected levels according to the EUR/USD value.

PLN expected levels according to the EUR/USD value:

Technical analysis EUR/USD: technically Eurodollar is still above the key support levels and above the trend line, which is around 1.3010 now. Strong resistance level is around 1.3100-1.3110. If EUR/USD breaks 1.3100 I expect the strong move above 1.3200. However, if we break 1.3000 I will see the down move to around 1.2900 (23.6% Fibonacci retracement).

Technical analysis EUR/PLN: the breakout from the triangle is the first sell sign on PLN. The next are on the way if we move above 4.1200 (breaking the 50 DMA and 23.6% Fibonacci retracement level). If it happens I expect the move to around 4.1800.

Technical analysis USD/PLN: the downtrend trend on USD/PLN is still valid. If we break levels around 3.1700-3.1900 (down trend line, 23.6% retracement level, and 50 DMA) it will generate the sell signal on PLN and move toward 3.2400-3.2700.

Technical analysis CHF/PLN. Similarly to EUR/PLN, CHF/PLN break the first resistance of down trend line. If it breaks 3.4100 it suppose to generate the move toward 3.4600 levels.