Daily analysis 22.10.2013

The EUR/USD is still strong and the Monday's correction pushed the pair just to 1.3650. September Jobs report from the US is scheduled for today. Charles Evans on Tapering and “government shutdown” at CNBC. Slightly weaker retail sales from Poland pushing the zloty lower.

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

• 10.00 CET: Already published retail sales from Poland (survey 4.6% y/y). Actual +3.9% y/y.
• 14.30 CET: NFP from the US (survey 180k). Unemployment rate from the US (survey 7.3%).

Still fairly high on the EUR/USD. NFP. Evans on QE

On Monday morning the market seemed to be ready for a correction. Many negative elements for the dollar were already priced in (fiscal issues and its impact on the monetary policy, Yellen nomination). Moreover there are some events on the horizon which can boost the dollar and depreciate the euro – NFP, Mario Draghi verbal intervention regarding the recent EUR/USD gains, PMIs from the Eurozone and Ifo from Germany (don't have to be as solid as previously). However, the market had chosen the other option – to wait for the NFP an then make the decision.

At 14.30 CET we are finally getting the September US payrolls. Some market participants try to “play down” the results claiming that the October tapering is not possible no matter what the data is, and the next month report will be disturbed by “government shutdown”. The real value will have only the November NFP (published less than a week before the December FOMC meeting) which will take into the account all the disruptions and have both September and October revisions. We also have to remember that the market is bearish on the dollar. To extend this sentiment investors need a confirmation of more QE. In case of “in line” reports or better then expected data it can spur a significant correction on the EUR/USD. A kind of different approach is presented in the “WSJ” article “„What to Watch for Tuesday's Jobs Report”. The “Journal” cites CRT Capital Group which claims that “The first snapshot of September payrolls has a statistical tendency to come in lower than expected 69% of the time, with an average miss of 89,000 jobs off the consensus. For the other 31% of the time it comes in higher than expected, the average upward surprise is 54,000 jobs” If the statistics is right and the NFP falls short of expectations by 90k we will probably see the EUR/USD soaring toward 2-year high.

Yesterday on CNBC we had a short interview with Chicago Fed's president Charles Evans (voting this year, dovish). On the question regarding tapering he answered: "October is a tough one. December? I think we need a couple of good labor reports and evidence of increasing growth, GDP growth. It's probably going to take a few months to sort that out." He explained he wanted to see "consistent" nonfarm payroll growth 200,000-plus jobs and a lower unemployment rate”. The probability for such a positive scenario for the US economy is quite low, so the QE tapering will be probably forward toward 2014 (if we regard his view as a consensus).

Summarizing, there is still high chance for the EUR/USD correction this week. This situation can be changed by the NFP. If the jobs data is significantly below the estimates (like in the CRT Capital Group research) we will probably be pushed to the 2-year highs on the most traded currency pair. On the other hand in case of solid data the EUR/USD can be pushed quite quickly under 1.36.

Weaker data pushes the zloty slightly lower

In the first minutes after the retail sales data was published the zloty is marginally lower. It is another weaker-than-estimated economic report (after the industrial production). The macro data can suggest that the rebound does not have to be as strong as some leading indicators predicted in the previous months (PMIs). However, in the coming hours investors should forget about the local data and focus on the US jobs report. Traditionally (since several months) worse-than-expected reports from the US should push the zloty higher. On the other hand solid Payrolls can lower the PLN to around 4.20 per the euro.

Summarizing the PLN should be pretty stable. More volatility is expected after the NFP, but still the 4.16-4.20 range should remain the base-case-scenario.

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

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