Daily analysis 31.07.2013

The EUR/USD is still stable, but the volatility will increase today. Lots of macroeconomic data from the US. Contradictory views regarding a possible GDP revisions in the States. The Polish zloty in line with expectations slightly weakened and moved further form 4.20 per the euro.

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

• 11.00 CET: Inflation from the Euro Zone (survey: 1.5%)
• 14.15 CET: ADP report from the States (survey: 180k)
• 16.00 CET: Conference Board from the US (survey: 81.3)
• 15.45 CET: Chicago PMI (survey: 54 points)
• 20.00 CET: FOMC publishes statement after the meeting

Volatility is expected. GDP revisions?

I have been noting recently that the second half of the week will be key for the currency market. The overall investors' perception toward the data hasn't changed. Worse-than-expected data from the US should weaken the dollar further and give additional boost to the EUR/USD. Traders will mainly analyze the GDP from the States (readings under 1.0% is a negative indicator for the greenback) and the ADP report (difference of more than 30k should increase the volatility). However, regarding the job's data I would see asymmetrical distribution. In case of solid data (over 200k) the dollar should strengthen much more then it would weaken in the scenario of weak reading (under 150k).

At the end of the trading day we have the statement from the Federal Reserve (no conference this month). In the recent days there have been reports that the Fed plans to revise its forward guidance. It can lower the unemployment threshold “to or under” 6% or relate the possible interest rate rise to inflation (if it stays under 1.5% the rates will not be raised). If the forward guidance are changed then it should weaken the dollar and will also lower the yields on treasuries. The Federal Reserve can also formalize the conditions regarding the QE tapering. It can connect it more closely to the data (there was some discussion concerning that issue previously; asset purchase will be ended when the unemployment drops to 7%) or try to “sound” more concerned on the future economic outlook which can also push the dollar lower.

Besides the GDP reading today the Bureau of Economic Analysis releases annual revision of the previous data. Economists are, however, divided whether the revision will be on the upside or on the downside. Lakshman Achuthan at Economic Cycle Research Institute told Bloomberg yesterday that “GDP revisions tend to be downward and can amount to as much as 2 to 4 percentage points”. On the other hand Richard Moody at Regions Financial Corp. cited by “MarketWatch” claims that “ We look for growth over recent quarter to be revised higher – the data on employment and income have been at odds with the GDP data so something has to give, and our money is on an upward revision to the GDP over recent quarters”.

Summarizing the day will be probably quite nervous. The most important will be the Federal Reserve statement followed by GDP (revisions?) and ADP. If all published data is dollar negative then we can easily move toward 1.34. Conversely, if we get readings favoring the greenback it is even possible that the slide can reach 1.31. In case of mixed reports then the expectations will move toward ECB meeting on Thursday and NFP on Friday.

Not enough strength to move under 4.20

The Polish currency returned above 4.22 level despite that the zloty was the strongest EM currency in July according to the Bloomberg. Today the PLN will be focused on the EUR/USD and the overall sentiment. If the common currency continue to rise than we can expect to get closer toward 4.20 level. In case of more negative data the zloty can easily breach 4.25. I don't expect that we can slide under 4.20 even in a scenario surge toward 1.34. The sentiment toward EM is not strong enough even though the zloty seems to be in the “better basket”.

Summarizing there is much higher probability that we move toward 4.26 than we will finish the day under 4.22 per the euro.

Expected levels of PLN according to the EUR/USD rate

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

The EUR/USD is still bullish. All Polish pairs are in bearish trends.

Technical analysis EUR/USD:the bullish positions are still preferred. Yesterday we almost touched the target/resistance at 1.3300. The next target is 1.34 (quite strong). Alternatively the slide under 1.3080-50 prefers the shorts.

Technical analysis EUR/PLN: we have reached the first target around 4.22. If the strong support around 4.20-4.22 is broken then the EUR/PLN can slump even toward 4.10-4.13. Alternatively the rise over 4.28 is a buy signal.

Technical analysis USD/PLN: A fall under 3.28 was a sell signal. The USD/PLN target at 3.18-3.14 is almost reached. The next one is around 3.05. A comeback above 3.26 again favors bulls.

Technical analysis CHF/PLN:the first target was reached at 3.42. The strong support is around 3.40. If it falls under 3.40 the next target is around 3.33. Alternatively a rise over 3.48 is a buy singal .

Technical analysis GBP/PLN: the sell signal was generated after sliding under 4.97 with a target around 4.9 (already reached) and in extension even toward 4.8. Alternatively a rise over 5.00 is an indication of bulls' return.