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Daily analysis 28.08.2013

28 Aug 2013 12:34|Marcin Lipka

The EUR/USD is still stable despite equities slide, EM turmoil, and oil surge. The CEE currencies have been relatively strong comparing to its counterparts from other regions. The Polish zloty is slightly weaker again.

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

  • 13.00 CET: MBA Mortgage Application. Important due to recent weak data form the new home sales. Interesting whether higher rates put a pressure on the number
  • 13.45 CET: BoA conference. Important due to recent forward guidance announcement. However, the dovish message from chief Carney was rather ignored by the bond market. The market expect that we will hear dovish comments

Still high on the EUR/USD. Syria increases the uncertainty on EM. CEE the safe haven?

Observing the EUR/USD chart it is hard to see any indications of the global turmoil. The most traded currency pair has been pretty stable, and even Middle East issues hasn't changed it. On the other there we have much stronger moves on other asset classes – equities, commodities or EM. The recent sentiment deterioration has been caused by the Syrian problems. Additionally, according to experts, regardless the US starts the military operation or not, the Middle East tensions will not fade. In results we will probably experience the risk-off trade at least for the following weeks.

I have mentioned many times recently that some EM economies (especially with large both current and budget deficits) can face significant problems. Besides the QE issues, we have also additional pressure from rising oil prices (especially in India and Turkey). Higher energy costs are increasing the current account deficits and therefore put a downward pressure on foreign reserves which in case of India are only at $270 billion (in Poland where population is 1/30 of Indian, the reserves stand at around $100 billion while in China are at $3500 billions). Some foreign investors who fear that their assets will lose value further are selling stocks or bonds and exchange the local currencies it to dollars or euros which put additional pressure on the local FX. The Indian rupee has lost almost 20% since the beginning of May. The Turkish lira does not look much better especially that it is geographically close to Syria and the local government disagree with the central bank interventions and interest rate policy (the administration does not see a need for FX interventions and is not really concerned with a slumping lira). The pressure on the local currencies also remains in Indonesia and South Africa.

In that context the situation in CEE economies looks much different. As “The Wall Street Journal” writes (“Emerging Europe Is a Haven In Selloff”) countries in Central Europe have become, kind of, safe havens. The daily paper notes that, the zloty gained 4% to the dollar since the beginning of June whereas some Asian currencies lost more than 10%. A good condition of the zloty or Czech koruna is a result of improving current account deficit and expected rebound in Europe. The “WSJ” cites also some global player who increased their positions on the Polish zloty (Kjetil Birkeland, senior analyst at Standish, a subsidiary of the Bank of New York Mellon Corp said “he expects the zloty to get a lift as Germany buys more Polish goods; the fund has already bought the zloty in the recent six months according to Birkeland). Additionally the EPFR Global reports that “Since early May, investors have put about a net $230 million into funds that mainly buy Polish stocks”.

Summarizing the EUR/USD has been much more resilient to the risk-off trade then previously (some reasons were presented on Monday from the Cignarella anlysis in the “WSJ”). However it is still valid that worse-than-expected data from the US and solid from the euro area should support the EUR/USD.

The zloty is slightly slower

On Tuesday the zloty was slightly weaker to the euro. However, taking into the account the global turmoil, the slide wasn't that large – around 0.5%. The main reasons besides the relative zloty's strength were mentioned in the previous paragraph. Besides the Syrian problems we are getting closer to another Federal Reserve meeting. It is still expected that the tapering can start in September which will be rather bearish for the PLN, but taking into the account the recent zloty's resilience to the turmoil, the depreciation should not be that significant.

From early morning the Polish currency is sliding, but the EUR/PLN pair hasn't breached the 4.26 level, and in short-term the base case scenario is a trade between 4.22-4.26. On the other hand, if we move above 4.26 the move toward 4.30 will be quite probable.

Expected levels of PLN according to the EUR/USD rate

EUR/USD 1.3250-1.3350 1.3350-1.3450 1.3150-1.3250
EUR/PLN 4.2200-4.2600 4.2200-4.2600 4.2200-4.2600
USD/PLN 3.1700-3.2100 3.1400-3.1800 3.2100-3.2500
CHF/PLN 3.4200-3.4600 3.4200-3.4600 3.4200-3.4600


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


GBP/USD 1.5550-1.5650 1.5650-1.5750 1.5450-1.5550
GBP/PLN 4.9300-4.9700 4.9500-4.9900 4.9100-4.9500


Overall technical situation on the analyzed pairs


The EUR/USD is still bullish. All Polish pairs, besides the CHF/PLN are in bearish trends.

Technical analysis EUR/USD: We moved above 1.3400 which should be a confirmation of the bullish trend. The target is 1.3700 now. The main support and pivot point is still 1.3200, but if the EUR/USD rises above 1.3500 the support/pivot will be moved to 1.3300.


Technical analysis EUR/PLN: The trend is bearish until we break above 4.26 level. According to AT the current value should be used to open short positions with the target around 4.17 and in extension 4.10. On the other had if we rise above 4.26, the buy signal will be generated with the target around 4.35.

Wykres 2

Technical analysis USD/PLN: the trend is still bearish until we rise above 3.22. The current level should be used to open short positions. On the other hand if we move above 3.22 the buy signal should be generated with the target around 3.39.

Wykres 3

Technical analysis CHF/PLN: the buy signal was generated on CHF/PLN with a first target at 3.52. On the other hand the slide under 3.43 should favor a range-trade between 3.40-3.45.

Wykres 4

Technical analysis GBP/PLN: we are getting closer to generate the buy signal (after breaking 5.00) with the target around 5.10. Staying under 5.00 still prefers the short positions.

Wykres 5

28 Aug 2013 12:34|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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23 Aug 2013 12:30

Daily analysis 23.08.2013

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Daily analysis 22.08.2013

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