Daily analysis 27.02.2013

Better then expected data from the U.S economy helped S&P 500 to gain ground, but failed to spur any upside move on EUR/USD. The common currency also didn't take advantage of dovish comments form Ben Bernanke and it is clearly under pressure from the Italian election results. EUR/PLN, despite all the uncertainties, is pretty stable.

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

• Around 11.00 CET: Italian debt auction results
• 14.30 CET: Durable goods orders from U.S ( survey: minus 4.7%)
• 14.30 CET: Durable goods orders from U.S excluding transportation (survey: +0.2%)
• 16.00 CET: Pending home sales in the States (survey: + 1.8% m/m)

Consequences of Italian election is still most important headline.

Italian election results is still the major issue for the markets. Additionally there is also no a visible sign that the situation will be resolved soon, and any speculation regarding coalition, lack of agreement or another election will be priced in immediately. Riccardo Barbieri, chief European economist at Mizuho International said Bloomberg in a note yesterday that “The only viable solution to form a government appears to be a repeat of the grand coalition that supported the Monti government”. It seems that such a resolution is also preferred by markets. However if the coalition fails to be formed and next election will be proceed, then we can see another wave of pressure on EUR/USD and further yield rise on peripheries debt. It would be a result of hypothetical victory of comic candidate Beppe Grillo, what in consequence would make the situation even more complex. The whole political turmoil not only weighs on the common currency but also on Italian debt. Yesterday the 10 year benchmark yields sky rocked around 40 bps (from 4.50 to 4.90) which was the strongest jump in 14 months. Today we will also witness how investors are reacting to primary bond auction. Italy is offering 4 billion euro of 10-years papers and 2.5 billion euro of 5-year bonds. If the current yield levels are used as an opportunity to open some longs positions then we can a strong demand during the auction, and in consequence the market (EUR/USD) can rebound. On the other hand if the cover-to-bid ration is low we can expect a further EUR/USD depreciation, and even a test of 1.3000 level.

Ben Bernanke and the U.S macro data.

Yesterday's Bernanke speech before the Congress was quite dovish and in a stable market (without Italian turmoil) would have caused EUR/USD to rise and other risky assets to gain value. The FED Chairman emphasized the need to continue the QE until the unemployment drops to a normal level. He also added that he does not see any threat from inflation and the current asset purchase program is helping the economy. Bernanke sounded much more dovish then the recent “Minutes” and he was not concerned that the ultra easy monetary policy can result in asset bubble crisis. Additionally the U.S investors received much more stronger eco data yesterday. The consumer confidence report and the condition of the housing market surprised on the plus side. In consequence the U.S equities rebounded around 0.5%, but the dollar was rather resilient to any weakness.

PLN fairly stable.

The zloty was rather stable on Tuesday. More volatility we could observed on CHF/PLN (result of EUR/CHF slide) and USD/PLN (due to EUR/USD moves). There is a lack of official macro reports this week so investors will start pricing in the next MPC members rate decision. It can be crucial for money and currency market investor because the Committee can decide that the easing period is over (no matter if they cut the benchmark or not).

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

Technical analysis EUR/USD: the current EUR/USD situation is still a consequence of the 1.3300 break down. Now we are at the first target around 1.3080. The next support level (mainly psychological) is 1.3000 and then between 1.2900-1.2840 (head and shoulder target, 50% Fibonacci retarcement level and 200 DMA). The comeback to the bullish trend is possible after moving above 1.3300 (currently low probability). According to technical analysis all rallies below 1.3300 should be used to open short positions.

Technical analysis EUR/PLN: the recent moves strengthens the range trade trend. The base scenario is the range trade between 4.1500 and 4.1900 levels. The break down will result in test of 4.1200 and breakout increases the odds toward 4.2300 move.

Technical analysis USD/PLN: suggested by technical analysis scenario of moving toward 3.24-3.27 (between 200 DMA and 50% Fibonacci retracement level has been fulfilling. The comeback to the bearish trend is possible after sliding under 3.1000 (low probability now).

Technical analysis CHF/PLN: the move over 3.4100 is a bullish sign with the target at 3.4800 (50% Fibonacci retracement level). The move can be stopped by 3.4300 (200 DMA and 38.2% Fibonacci retracement level), but taking into the account the long range trade and the recent upside move it is more possible that we move toward 3.4800.