Daily analysis 23.05.2013

EUR/USD is falling again below 1.2850 after Ben Bernanke statement suggesting reduction in asset purchase operation in few months. More discrepancies inside FOMC are seen in the “Minutes”. Weak data from China. European PMIs in focus. The zloty is weaker due to EUR/USD fall and is testing 4.20 resistance level

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

• Between 9.00 CET and 10 CET preliminary PMIs from Germany, France and the Euro Zone
• 10.30 CET: GDP from the U.K (survey: 0.3% q/q and 0.6% y/y)
• 14.30 CET: U.S jobless claims (survey: 345k)
• 14.58 CET: Preliminary PMI from the U.S (survey: 51.2)
• 16.00 CET: Existing home sales (survey: 425k)

QE reduction in a few months. More hawks in the FED. Weak PMI from China. European data in the morning.

According to most analysts we had a significant level of volatility around 1600 CET on all asset classes. It was all caused by Ben Bernanke testimony before the Congress. Just after 4 pm CET the Fed chairman statement was published, where traders swiftly found a good indication of more QE on the horizon citing that “A premature tightening of monetary policy could lead interest rates to rise temporarily but would also carry a substantial risk of slowing or ending the economic recovery and causing inflation to fall further”. It pushed the EUR/USD close to the 1.3000 mark and Dow Jones soared more then 150 points. It was, however, the peak of the day. Just minutes later, when questions were progressing form the “Joint Economic Committee” the rally were slowly fading. A turning point came, when JEC chief Kevin Brady asked Bernanke of more precise date of QE tempering. The FOMC chairman answered that it can happen in “next few meetings” and will depend on the incoming data, but he denied to elaborate further even though Brady was hovering around September digging “Before Labor day?”. When traders heard “in few months” then they clicked “sell button” and in two hours we were 150 pips lower on the EUR/USD and 200 points on the Dow.

Looking at the FED calendar we can see that the September meeting include the Chairman conference so it can be a good moment to answer all the questions about a hypothetical tempering. It seems then that September is the base case scenario and now we will have another time a well known trade – worse-then-expected data (not only on jobs, but also lower inflation and leading indicators) can move QE exit further into the future, and sound economic reports will confirm the September turning point.

It is also worth to look at the published yesterday “Minutes”. Despite that at 20.00 CET already “all was settled down” there seems to be quite a discrepancy inside the FED. “A number of participants expressed willingness to adjust the flow of purchases downward as early as the June meeting if the economic information received by that time showed evidence of sufficiently strong and sustained growth” In this meaning, as Financial Times article “Bernanke says bond buying could slow” points out, participants means not only the voting members, but the June data looks like a pretty early date. It looks even more important when we think that FOMC didn't have the revised payroll data. So, what are they thinking now as a Bloomberg reporter asked today?. If we didn't have the Bernanke hearing it would have been a turning point for the EUR/USD. It also confirms that September data can be a good moment to announce the QE reduction (it will be a good time for hawks and doves to came with a cohesive conclusion)

During the Asian session we had a disappointing PMI data which worsen the overall risk-aversion sentiment and pushed Nikkei index 7% lower. It was not a good indication before the European data which has a low chance to improve the market mood.

Summarizing we are again close to the 1.2850 mark. The market after the yesterday's “reset” will be again looking in the data from the States (better-then-expected stronger dollar; worse-then-anticipated equals more QE and weaker greenback). At that moment I would see, both form the technical and fundamental side, more dollar strength and further slides of EUR/USD

The zloty looks at 4.2000

According to the yesterday's comment the zloty was fully depended on the global events. At the beginning of the Bernanke testimony EUR/PLN slided to under 4.1700, but later it moved higher and currently we are trading close to 4.2000. There is an increasing risk that we can try to breach the resistance (in case of EUR/USD slide under 1.2800 or weaker data from the retail sales on Friday).

I see a further pressure on the zloty and odds for ending the week over 4.2000 have significantly risen.

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

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

Overall technical situation on the analyzed pairs

The technical analysis perfectly predicted EUR/USD move. There is still no changes on the analyzed paris.

Technical analysis EUR/USD: We quickly bounced back from the 1.3000 resistance level. No we should continue the bearish trend and after falling under 1.2800 the slide should accelerate to reach the 1.2700 target.

Technical analysis EUR/PLN: the base scenario is still the range trend (4.12-4.20). Alternatively the breakout above 4.20 should generate fast move toward 4.25-4.30.

Technical analysis USD/PLN: the 3.27 target is still in place with extension to 3.3300. A comeback to the sliding trend is possible after falling below 3.18 (low probability currently).

Technical analysis CHF/PLN: We are again close to generating sell signal on CHF/PLN. Falling under 3.330 should give a sell signal with a target of 3.2700. If 3.33 resistance holds then we chould expect the CHF/PLN to stay in the range trend (3.33-3.40).

Technical analysis GBP/PLN: the short term target for the pair is a move toward 5.0000 and an attempt to change the mid term trend to rising. The breaking above 5.0000 should initiate the move toward 5.1000. The alternative scenario is a move under 4.85 where bears should take the lead.