Daily analysis 20.12.2013

A slow EUR/USD sliding is still a consequence of the tapering decision. Record current account surplus in the Eurozone. “Fragile five” after the QE reduction. EUR/PLN did test 4.16 support during the US session. Professor Osiatyński will strengthen the dovish camp.

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

• Besides the market consensus we are also publishing the consensus range. It gives more info how economists predict the incoming data and what kind of impact can be generated from surprising reports.
• 14.30 CET: Final GDP reading from the US (survey for the annualized 3rd quarter is 3.6% with the range between 3.3% to 3.8%).

The consequences. Eurozone Curent Account. “Fragile five”

The further downward pressure on the EUR/USD is still a result of the Wednesday's tapering. The most heavily traded currency pair dropped around 150 pips in the 48 hours. Because we are getting closer to the end of the year there is very few macro data which can affect the currencies. Investors then will have to focus more on the technical analysis which can favor the bears. If the EUR/USD slides under 1.3600 mark than the double top at 1.3800 can generate a sell signal with the target around 1.3400.

Yesterday the ECB published current account data. It turned out that, despite a strong euro in October, the single currency area enjoyed a record high traded surplus – 20 billion EUR. Overall the C/A rose to 26.2 billion euro in October an the 12-month cumulated data shows a surplus of over 200 billion EUR. It accounts for 2.2% which is the best result ever. Despite that most of the result was achieved by the German economy the overall Eurozone situation has improved significantly. It is also one of the most important fundamental reason behind the euro strength this year.

During the recent months there was a widespread rumor regarding the tapering impact on the EM currencies. When a global monetary policy is tightened, the economies with high double deficits (current account and fiscal) are the most affected. The situation can be even worse if the political system in developing countries is not stable. In August, according to CNBC, Morgan Stanley analyst James Lord put five economies into one basket – Brazil, India, Indonesia, South Africa and Turkey – and name it “Fragile five”. Some of the local currencies from “Fragile five” have lost a lot of value in the recent months – more than 10% since Bernanke sinaled tapering in June, and almost 20% since the beginning of the year. However, two days after the actual tapering took place most of them didn't depreciate more than one percent and only Turkish lira is significantly lower. It does not mean, of course, that any trouble has been solved, but it is a good example how investors sometimes overreact.

Summarizing, there are only few days till the end of the year and no crucial macro data on the horizon. However, in the past there were examples when the volatility picked up shortly before the New Year's Eve.

An attempt to slide under 4.16. Professor Osiatyński

Yesterday, during the US session the zloty tried to move under 4.16 per the euro. The support worked properly and today we are again above that key level. The PLN strength was quite surprising and it is hard to say whether it was a result of some late exporter hedging (less probable) or a foreign investor who was lured by a rising risk appetite anddecided to buy some Polish assets.

According to a broad media reports professor Osiatynski is going to be nominated by president Komorowski to become a new MPC member (professor Zyta Gilowska resigned earlier this year). Osiatyński is supposed to give more power to the dovish camp. Accoring to a news published by“Polish Press Agency” in late November (http://biznes.pap.pl/en/news/all/info/895503,polityka-pieniezna-nie-pobudzi-koniunktury--ale-nie-powinna-szkodzic-%E2%80%93-osiatynski-(wywiad) ) he would like to keep the interest rates low for longer and claims that the loose monetary policy does not have to help the economy but a tight one will hurt it. He also criticized the MPC for not cutting the rates earlier.

Summarizing the odds for a stronger zloty are rising but still the most probable outcome is a range trend beteen 4.16-4.20.

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

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