Daily analysis 29.10.2013

Slight changes on the EUR/USD in the recent 24 hours. Interesting developments on the Aussie. Two-year highs on the euro-dollar are not only a result of the “greenback” weakness? The zloty has been traded in a narrow range.

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

• Already published German Ifo index.
• 13.30 CET: retail sales from the US (data from September). Survey (+0.3% m/m; excluding autos +0.4%).
• 15.00 CET: Conference Board (consumer confidence). Survey (75 points).

No major changes. Australia. Euro strength

The EUR/USD wasn't eager to initiate any major move yesterday. We were trading both slightly above the 13800 level and marginally below that level. Furthermore the macro data was mixed with higher industrial production and lower pending home sales. Overall investors will be wating for the Wednesday, when the ADP report is scheduled to be published and the Federal Reserve releases its statement.

In the recent month there has been quite a lot of volatility on the Australian dollar. At the end H1 of 2013 on the wave of worsening economic situation in China (the main export destination) and more expansionary monetary policy, the AUD/USD pair dropped below the parity. Further weakness of the Aussie was caused by high probability of incoming tapering in the US. In result the Australian dollar dropped to 0.88 level in August (in April it was around 1.05 what is more than 15% slide in 3 months). However, in the second part of 2013 it turned out that China would avoid the hard landing and the US would not wind-down the asset purchase as early as expected. In result the AUD/USD soared for the Summer's lows to 0.97 (10% from the bottom). Currently investors are paying around 95 US cents per the Australian currency, and after today's comments from Glenn Stevens, RBA governor that the Aussie “will be materially lower than it is today” the pressure is mounting. Finally the current account deficit is growing with disappointing trade results (also deficit on y/y basis) which can push the currency again toward the bearish trend.

Today's Financial Times published an interesting article on the euro (“Curse of euro lands ECB in tricky dilemma”). There are many opinions that high levels on the EUR/USD are mainly caused by dollar weakness. However, Ralph Atkins claims that the euro strength can be a result of improving fundamentals of the Eurozone (for example the current account surplus in the second quarter of 2013 is almost at the same level is in China – 2.4% to the GDP and 2.5% respectively). The author also writes that the common currency can be again viewed as a “save haven” - an alternate asset for the dollar and also for the yen which has been weakeded by aggressive BOJ monetary policy. Atkins points out that the monetary policy in Europe is much less radical (no QE – author's note) than in the US and the ECB will probably not decide to introduce a negative interest rates to weaken the common currency.

Summarizing, we should have another calm day on the analyzed pairs. However, it is worth to focus on afternoon reading of Conference Board consumer index. The October reading can show whether the government shutdown had any impact on the customers' sentiment and whether it can translate to the real economic weakness, and finally if it pushes the Fed to taper later (March 2014).

The zloty remains stable

Yesterday we had a really boring session on the local currency market. The zloty was traded with a very narrow range (around 4.1750 +/- 0.005 PLN), which is a really a low volatility even taking into the account the recent calmness. Today in the morning the PLN, in line with slightly falling EUR/USD, lost around 0.2%, but it is rather not a beginning of any major depreciation move (still quite important data is ahead of us this, and no fundamental reasons to sell the zloty).

Summarizing the base case scenario is still a range trade between 4.17-4.19 level. Slightly more volatility we can expect on the USD/PLN, which in case of sliding EUR/USD can briefly rise to around 3.05 (not changing the trend just a slight correction).

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

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