Daily analysis 26.03.2013

Despite the initial market cheers the Cyprus case came back to headlines after Eurogroup chief comments. Investors are getting details about negotiations in Brussels. Today we have some macro data from the US. The sterling is stable to the dollar, but stronger against the euro. The PLN gives up yesterday gains.

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

• 13.30 CET: Durable goods orders from the States (survey +3.9% and 0.6% exluding transportation)
• 15.00 CET: Consumer Confidence from the U.S. (survey: 67.5)
• 15.00 CET: New home sales from the U.S (survey 420k)

Eurogroup chief comments weight on European peripheral banks and debt market

After the beginning of Monday's session many investors predicted that the Cyprus case is behind us (at least for a while), and they will focus on coming macro data, government in Italy or monetary policy of the G7 countries. In such moments the market likes to surprise its participants, and after a few hours of trading, the optimism vaporized. It is worth to note, however, that the EUR/USD move wasn't a result of the Eurogroup chief statement (he told Reuters “that the Cypriot rescue plan may become a template for euro-are bailouts”). The euro started the slide just after 13.00 CET, and the opinion from Jeroen Dijsselbloem hit the wires after 15.00 CET. It mainly caused a larger move on Spanish or Italian debt market and peripheral banks but it caught the common currency at the and of the slide. The later clarification of the Dijsselbloem words from his spokeswoman didn't improve the situation and we ended the day on hefty losses.

There has been some leaks on the negotiations atmosphere between Troika and Cyprus (from The Wall Street Journal: „Bailout Strains European Ties”). The Journal cites high rank UE official who claims that he has never seen such chaotic talks. The paper reports also that there was a “fight” regarding the Bank of Cyprus (finally decided to be restructured but the details are still unknown) where “many parliamentarians keep their savings”. On Friday the patient was also lost by Angela Merkel who told her advisers that “Cyprus was trying face Europe down”. She wanted to keep Cyprus in the euro zone but both the chancellor, and the German finance minister were “prepared to let Cyprus fail if it wouldn't agree to terms”.

Some earlier reports that Nicosia might be blackmailing EU seems to be valid especially concerning the last sentence from the article where a senior Cypriot official says “We bluffed and we lost. The whole thing was a fiasco”. After yesterday's EUR/USD slide the situation is in the bears hands. It is worth to pay attention to today's macro data. Stronger reports from the U.S economy can support the dollar and push the main currency pair further south.

No major changes on the pound

The pound has been trading around 1.5200 against the dollar. The euro sell off did help a bit the British currency (on EUR/GBP pair), but the declining risk appetite and the bank's pressure keeping the sterling from stronger gains. Tomorrow's final GDP reading should not give a major impulse to the cable. It is a low probability that the reading will be much different the survey (minus 0.3% q/q and +0.3 y/y).

The zloty gives up Monday's gains

The PLN moved toward 4.1600 yesterday. Today, with the overall risk aversion increase, it is around 0.01 PLN higher. The base scenario is the range trade (4.15-4.19) with higher probability for the breakout higher then lower. From the morning we have some remarks from the Radio PIN interview with Andrzej Bratkowski. The MPC member does not expect the rate cut in April and does not see a recession threat in Poland. He also predicts the GDP growth between 1-2% with slight risk on the downside (under 1%). Professor Bratkowski conditions future rate cuts on the economy (lack of improvement increases the odds for the cut).

Expected levels of PLN according to the EUR/USD rate

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

Technical analysis EUR/USD: the yesterday's EUR/USD slide favors bears. The target is currently 1.2700. On the other hand if we move above 1.3000 there will be a chance to move even toward 1.3250.

Technical analysis EUR/PLN: the base scenario is the range trend 4.12-4.18 but with higher probability to move over 4.1800 then to slide under 4.1500.

Technical analysis USD/PLN: despite the yesterday's correction the bullish trend is still in palce with the target around 3.2700 (50% Fibonacci retracement level). On the other hand the slide under 3.2000 can push the pair further downside toward 3.1400 support.

Technical analysis CHF/PLN: the bulls didn't allow to break the 3.4000 support level. The 3.4800 target is still in place

Technical analysis GBP/PLN: the correction was not able to push the pound under 4.85 and in results the bulls are still in favor. The target of the recent move is 5.0000. The alternative scenario is slide under 4.8500 where the bears can increase their PLN holdings.