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Daily analysis 23.10.2013

23 Oct 2013 10:27|Marcin Lipka

The EUR/USD rose to 23-month highs on weaker-than-anticipated NFP for the US. Goldman Sachs, JPMorgan and other major financial institutions pushing forward their expectations on tapering. The zloty took advantage from weak dollar but 4.16 level on the EUR/PLN has not been broken.

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

  • No macro data which will significantly move the analyzed pairs.

Fresh highs on the EUR/USD. NFP. Financial institutions on tapering

The EUR/USD soared after the NFP was published on Tuesday. The most heavily traded currency pair rose to 23-month high and peaked close to 1.3800 level. The direct impulse with pushed the dollar lower came from the US labor department. The “greenback” was also pressured by White House estimates that the latest “government shutdown” could have trimmed 120k jobs in October (how much politics is included in that number will be uncertain until at least the December data). Another hit for the US currency came from investment institutions which updated their tapering estimates and moved them into early Spring of 2014. The last element which supported the currency move was a slide of US 10-year treasuries. The yield dropped to around 2.5% (the lowest level in three months). All the issues above support the view that full-scale QE will remain at least till March 2014.

Looking at the NFP data we can see that the dollar depreciation was kind of justified. Firstly the headline number was 32k below the estimates (148k vs 180k). Secondly the July data was revised to 84k (first under 100k reading in 12 months). Despite that, the updated number for August was higher and a combined revision was +9k, the July data was a scary one. At the end it is also worth to mention the private part of NFP. If the government didn't add 22k jobs we would have the headline reading at 126k.

Major financial institutions quickly reacted to the modest jobs report. As MarketWatch.com reports Barclays chief US economist, Dean Maki claims that he is pushing out his expectation for the first Fed tapering to March from December “in light of the moderate tone of the September data.” The similar move is observed regarding Goldman Sachs and JPMorgan. The Wall Street Journal reports that “GS” told its clients “while the uncertainty is considerable, we think that March is the most likely date under our economic forecast,”. The similar view is presented by the latter. JPMorgan chief US economists, Michael Feroli says that, based on the economics, the “March Federal Open Market Committee” meeting would be a good spot to slow the stimulus. Feroli also points out that in case of more issues with the federal budget, the tapering can be also moved to April.

Summarizing the situation is getting pretty clear (at least regarding QE). The dollar should be still under pressure concerning that the QE reduction will start at earliest in March 2014. It is suppose to trim the dollar appetite to rebound and increases the odds for the EUR/USD to test the 1.40 level.

The US data supported the zloty

In line with a broad approach, the PLN got a lift from weaker-than-expected NFP report. The ultra-easy monetary policy should support more risky assets and therefore the zloty should enjoy a slight upward trend in the medium-term. However, yesterday the EUR/PLN was not able to fall under 4.16 level (still the support works). A more significant reaction has been observed on the USD/PLN which is only fractionally above 3.00 level.

Yesterday we had two MPC members statements. Professor Chojna-Duch told the PAP that “extending the neutral monetary policy stance toward mid 2014 is in my opinion a decent approach assuming there will not be any external shocks and macro changes”. In the same context we can understand Belka view who says (quotes form ISBnews) “This data (retail sales – author's note) is brining us to view hat we will extend the neutral stance regarding the monetary policy”.

Summarizing the zloty should still benefit from a weaker dollar and ultra-easy US monetary policy. There is also a higher probability that we will slide under 4.16, with a direction toward 4.14 and 4.10 some time in the Q4.

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

Range EUR/USD 1.3650-1.3750 1.3750-1.3850 1.3550-1.3650
Range EUR/PLN 4.1600-4.2000 4.1600-4.2000 4.1600-4.2000
Range USD/PLN 3.0100-3.0500 2.9800-3.0200 3.0400-3.0800
Range CHF/PLN 3.3600-3.4000 3.3600-3.4000 3.3600-3.4000

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

Range GBP/USD 1.60500-1.6150 1.6150-1.6250 1.5950-1.6050
Range GBP/PLN 4.8700-4.9100 4/8900-4.9300 4.8500-4.8900

23 Oct 2013 10:27|Marcin Lipka

This commentary is not a recommendation within the meaning of Regulation of the Minister of Finance of 19 October 2005. It has been prepared for information purposes only and should not serve as a basis for making any investment decisions. Neither the author nor the publisher can be held liable for investment decisions made on the basis of information contained in this commentary. Copying or duplicating this report without acknowledgement of the source is prohibited.

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