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Daily analysis 24.09.2013

24 Sept 2013 11:41|Marcin Lipka

Dominance of dovish comments from the FOMC participants and possible another round of the LTRO from ECB didn't make an impression on the EUR/USD. Ifo reading from Germany. The Polish zloty is still stable. Better-than-estimated retails sales didn't affect the local currency.

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

  • Already published Polish retail sales data (survey: 2.6% y/y; actual 3.4%).
  • Already published German Ifo index (survey: 108 points; actual 107.7).
  • 16.00 CET: US Conference Board (survey: 80 points).

Central bankers' statements. Ifo reading

We have been in quite narrow range trade for a few days on the EUR/USD. The levels reached just after the Wednesday's Fed announcement are still in the game and the recent consolidation around 1.3500 can be a good starting point for further moves.

Yesterday we had three FOMC members statements and ECB chief Mario Draghi testimony in the European Parliament. Starting with the US, the most closely analyzed speech was prepared by William Dudley (New York Fed president, always voting, dovish, probably 3rd the most important member). We can conclude that it was “kind of” explanation why the Federal Reserve didn't wind-down the asset purchase program in September (http://www.newyorkfed.org/newsevents/speeches/2013/dud130923.html – full text with a nice explanation of “Full allotment Overnight Reverse Repo Facility”). Dudley, at the Fordham University presented several arguments which pushed him to vote against the tapering. Firstly he quoted “high degree of fiscal drag, which the Congressional Budget Office estimates at about 1.75% percent of potential GDP in 2013”, secondly “sharp rise in long-term interest rates, especially residential mortgage rates – that has occurred since May” and lastly “the drivers of consumer spending do not look particularly supportive”. In my opinion, however, all the reasons, but the “rise in interest rates” were pretty clear either in June or in July. So it is possible that the main reason to keep the QE3 in full scale was elevated level of mortgage rates (120 bps points higher then in May, as Dudley said) and its future impact of the housing market. Similar opinion was presented by Dennis Lockhart (non-voting, close to the center of the FOMC) in the “WSJ” interview. He claims that the economy is uncertain currently and budget issues can drag the growth. He also rather ruled out the possibility of tapering in October saying that “I don't have expectations that the fog will clear dramatically between now and October”. On the other hand a well-known hawk, Dallas Fed president Richard Fisher (voting in 2014) claims that “Doing nothing at this meeting would increase uncertainty about the future conduct of policy and call the credibility or our communications into question”. Ending the central bankers' paragraph Mario Draghi suggested at the European Parliament that he is “ready to deploy another long-term refinancing operation, if needed” This time it would be rather a bearish message for the euro (previously it eased all the systematic tensions regarding the single currencies, so the reaction was euro-bullish).

Published in the morning Ifo index was pretty close to estimates (107.7 vs 108). The reading was also at almost one and half year high, so it didn't really pushed the EUR/USD lower.

Summarizing, the FOMC members statements were rather dovish. It can also mean that the tapering can start, at earliest, in December (still most will be very cautions regarding certain dates on QE reduction this time and estimates can deviate significantly). The EUR/USD has been waiting for a strong impulse which can either push the pair higher (Yellen nomination) or lower (solid US data?).

No changes on the zloty. Retail sales data

The Polish currency is still pretty stable. It was not moved either by the Members' statements or Draghi's 3rd LTRO suggestions. Today we didn't also see any reaction after the Ifo or retail sales readings.

The similar situation will be probably observed till the end of the week, unless a major info hit the wires (Yellen nomination?). Both the zloty and the debt market seem to be fairly balanced currently, so we have to wait for a more significant impulse for any stronger move. Today the EUR/PLN should remain around 4.21-4.23.

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

Range EUR/USD 1.3450-1.3550 1.3550-1.3650 1.3350-1.3450
Range EUR/PLN 4.2000-4.2400 4.2000-4.2400 4.2000-4.2400
Range USD/PLN 3.1100-3.1500 3.0800-3.1200 3.1600-3.2000
Range CHF/PLN 3.4000-3.4400 3.4000-3.4400 3.4000-3.4400

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

Range GBP/USD 1.5950-1.6050 1.6050-1.6150 1.5850-1.5950
Range GBP/PLN 4.9900-5.0300 5.0100-5.0500 4.9700-5.0100

A breakout above 1.3400 was another bullish signal for the EUR/USD and a confirmation for the move toward the next major target at 1.3650. All PLN pairs are in bearish trends.

Technical analysis EUR/USD: the next target for the EUR/USD is 1.3650 and in the extension even 1.4000. Sliding below 1.3400 generates a sell signal with the first target around 1.3200.


Technical analysis EUR/PLN: the 4.1800 target was reached. The next is fall toward 4.10-4.13 range with a possible test of the lower band. A bullish signal is generated after moving above 4.22 level.


Technical analysis USD/PLN: the target is still 3.05 on the pair (which was almost reached). We are down more than 0.15 PLN since the sell signal was generated. Shorts are preferred until we rise above 3.15.


Technical analysis CHF/PLN: the comeback under 3.43 negates the buy signal. Now the base case scenario is a range trade between 3.40-3.45. Sliding under 3.40 generates a sell signal with target at 3.33.


Technical analysis GBP/PLN: the sell signal was generated with the first target at 4.93 and another at 4.85. The comeback to the bullish trend is generated above 5.03.


24 Sept 2013 11:41|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.

See also:

23 Sept 2013 11:21

Daily analysis 23.09.2013

20 Sept 2013 12:02

Daily analysis 20.09.2013

19 Sept 2013 15:03

Daily analysis 19.09.2013

18 Sept 2013 11:42

Daily analysis 18.09.2013

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