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Daily analysis 24.10.2013

24 Oct 2013 11:53|Marcin Lipka

New highs on the EUR/USD before the start of the European session. PMIs readings from China, France, Germany and the Eurozone. Polish zloty is traditionally pretty stable to the euro.

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

  • Already published PMI data from China, France, Germany and the Eurozone.
  • 14.30 CET: weekly jobless claims from the US.
  • 15.00 CET. Manufacturing PMI from the US (survey 52.8). Is not suppose to have as significant impact as the ISM.

Morning breakout. The PMI day

We should get a short pasue today from all the Fed's issues and QE talks. In the coming hours investors will focus on the market reaction after worse-than-expected Eurozone PMI. In the morning (before the European session really started) we had new highs on the common currency. However, the move is not that significant (light trading, before the data) and the Thursday's closing will be much more important.

The Asian session was quite bullish for the most traded currency pair. The preliminary manufacturing Markit/HSBC PMI index was both better than analyst's estimates and the previous readings (actual 50.9; survey 50.5; September 50.2). Honghinb Qu, Co-Head of Asian Economic Research at HSBC said that “PMI rose to a seven-month high of 50.9 on the back of broad-based modest improvements. He also added that China bottomed out in the 3Q and the recovery should continue in the following months.

We got much worse impression from the managers index from the euro area. At the beginning of the week I pointed out that the recent survey was too bullish and the real economy does not confirm such a optimistic view. Firstly at 9.00 CET the French PMI hit the wires. Both manufacturing and services data missed the expectations and were below the September readings Moreover the German PMI also wasn't solid, especially regarding the services index which dropped 1.4 points to 52.3 points. Finally the composite PMI (combing German, French and other large Eurozone countries) turned out to be lower by 0.7 points comparing to the September reading and dropped to 51.5 level. Despite that most of the data fell short of expectations, Chris Williamson, chief Markit economist wasn't that concerned. He wrote that “The dip in the PMI in October is clearly disappointing, but it would be unwise to read too much into one month's data. He also clams that “Although modest, the expansion is reassuringly broad-based across the region, reflecting sings of economic recoveries becoming more entrenched in the periphery as well as ongoing expansion in Germany and stabilization in France”.

Summarizing, the European data was pretty weak. Despite a neutral comments from Markit chief economists the PMI was a negative impulse for the EUR/USD. However, it can also be a good test for the strength of the common currency. If we end the day above 1.3800 is should further boost the bulls' confidence. Tomorrow we are having the German Ifo data. Economists expect the reading around 108 points (which will be 1.5 half high).

No emotions on the zloty

at least on the EUR/PLN pair, which has been traded between 4.16-4.18 for almost two weeks. The similar situation will be probably valid till the end of the week. The reaction for the weaker-than-estimated PMI readings from Europe was also very muted (partly probably also due to that manufacturing German PMI was the only bright spot in the report.

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”.

We can expect a slightly more volatility on other pairs with the zloty – CHF/PLN and USD/PLN. The first one is more affected by slightly stronger Swiss franc to the dollar and to the euro which pushed the CHF/PLN by around half percent. The latter is usually purely affected by the EUR/USD move but this time we are pretty close to a psychological level – 3.00 , which can be tested (it could also push the EUR/PLN toward 4.16 again in case of favorable EUR/USD move).

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 3.0300-3.0700 3.0000-3.0400 3.0600-3.1000
Range CHF/PLN 3.3800-3.4200 3.3800-3.4200 3.3800-3.4200

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

24 Oct 2013 11:53|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:

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Daily analysis 23.10.2013

22 Oct 2013 11:34

Daily analysis 22.10.2013

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Daily analysis 21.10.2013

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