Daily analysis 24.06.2013

EUR/USD is around 1.3100. Bonds, stocks, commodities and EM currencies are still under pressure. Contradictory views from the Polish MPC – Kazimierczak and Haunsner. The PLN is on the sell side.

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

• 10.00 CET: Ifo from Germany (survey: 105.9).

Still far from the stability. EUR/USD is on the slide

We ended Friday near the week's lows on the EUR/USD. The capital outflow from commodities, bonds, stock and EM currencies was parked in the U.S currency. Purely QE (off/on) investors perception is taking its toll on the market. The volatility has significantly increased bears are looking for other reasons to push the trend further (China, Greece). However, even though the last week was tough, we are still very far from 2009-2010 situation. Any catastrophic scenario is not even on the horizon. It is rather a come back to the reality (pretty fast) regarding the bond market. The move is, of course, increased by QE tapering perspective and therefore many assets are also affected. If we go a bit further, it is worth to note that the money has to “work”. It will not be deposited at “0” percent. The highest probability that the funds will be invested in the stock (mostly in the U.S). When the market calms down and bonds find equilibrium, we can expect another wave of bullish market. Later the economy should also help – moderate growth and 2-4% inflation. The latter, however, not earlier then in late 2014.

Getting back to the currencies, EUR/USD is still under pressure. Increasing dollar value and overall risk-averse sentiment (liquidity issues in China, politics in Greece) does not give an opportunity to generate any rebound. It is quite possible that in the near future (several hours) we can even test 1.3000. Any catalyst which stop the EUR/USD slide should come either form the U.S data (worse-then-expected which will justify longer QE, but not as bad to undermine the economic recovery), or from Fed official which should start to be concerned that U.S treasuries has reached 2.6%.

Summarizing the volatility will stay with us for longer. The EUR/USD should test 1.30 support and probably will move lower unless a “big Fed news” comes to the market. It is also possible that some “forgotten” issues will come back (Greece, Spain, Italy) and wiil put the pressure on the EUR/USD form the euro side.

Contradictory messages from the Polish MPC members

In the morning Bloomberg published an interview with Andrzej Kazimierczak. The MPC members (viewed as a hawk) claims that “Polish rate cuts “evidently” harm zloty” and additional cut will not give any boost the the economy and spending. On the other hand Jerzy Hausner (pretty neutral MPC member) “replied” that “zloty fall shouldn't sway July rate decision” and “ Nobody said the cycle ends in July and if the statement after the next month's rate meeting doesn't contain language to that effect, the it could continue through September”. After professor Hausner statement the cut seems to be certain, but the probability of the next rate decrease (in September) is very low (regarding other MPC comments and economic situation), and probably was mentioned only to calm down the bond market a bit.

Summarizing the zloty is still be under pressure. Currently only the global situation matters, so any message form the Polish economy or MPC comments will be ignored. The zloty in the coming days will be probably testing levels over 4.40 on EUR/PLN and 3.60 on CHF/PLN.

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:

EUR/USD slide under 1.32 gives an opportunity to slide toward 1.30. All zloty pairs are in bullish trends.

Technical analysis EUR/USD: the slide under 1.32 will give signal to close the longs or open shorts. The next support is expected around 1.30. Alternatively the strong resistance is set around 1.34.

Technical analysis EUR/PLN: the rise over 4.28 is a bullish signal. Breaking 4.32 should be then the next target is set around 4.40. Only the slide under 4.20 ends the recent rising trend.

Technical analysis USD/PLN: the rise over 3.22 is a strong buying signal. The target for USD/PLN is around 3.30. If the PLN weakness continues, then the next target will be around 3.35 and in extension 3.5.

Technical analysis CHF/PLN: the target for the pair is currently 3.5 and in extension 3.6. Only a fall under 3.40 ends the rising trend.

Technical analysis GBP/PLN: the 5.10 target was reached. The next target is around 5.20-5.22. The slide under should favor bears.