Daily analysis 12.11.2012

EUR/USD around 1.2700. Greek budget approved – no cheer on the markets. Euro-group meeting. Will it affect the markets? Relative strong PLN thanks to the debt market.

Widely expected ”yes” voting concerning the Greek budget has not brought any reaction to the EUR/USD. Additionally the lack of signals from the Wall Street causes that at the beginning of the European session bull and bears are even. I would not also expect any signals form the real economy. The macro calendar is empty and the real discussion on fiscal cliff has not even started.

However, it does not mean that markets will not find any reason to trade. Today the good occasion to boost the volatility will be the Euro-group meeting. The decision concerning the next bailout tranche for Greece will probably not be made (as Bloomberg earlier reported). On the other hand at the summit there can be quite extensive discussion how to help Athens to overcome the depression, and to reduce its debt. Analysts speculate that Greece can receive interest rate reduction on the present loans or the repayment time extension. There is still on the table the idea to buyback the discounted debt for new loans and therefore reduce the Debt-to-GDP ratio. The more aggressive outcome from the meeting the more bullish reaction on the markets. Lack of real decision will extend the uncertainty period, and will put more pressure on the common currency.

The recent PLN weakness has been limited especially concerning the sharp downside move on U.S markets and EUR/USD. The main reason for the Polish zloty to be relative strong is the debt market. From the beginning of November the benchmark 10-year bond yields slumped by massive 40 basis points (from 4.57% to 4.17%). Such substantial move was at least partly caused by foreign investors, who were buying the debt and therefore increasing long positions on the PLN. However it is not possible to sustain such strong trend on bonds for the longer time. It means that we can see the sharp depreciation on PLN, unless the global market sentiment improves.

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

Technical analysis EUR/USD: technical analysis still favors downside moves with the first target around 1.2600 (50% Fibonacci retracement level), and later 1.2475-1.2500. The pivot point is now around 1.2900.

Technical analysis EUR/PLN: in the coming days we can see the breakout of 4.1700-4.1800 levels (38.2 Fibonacci retracement level and 200 DMA). The target for the week is 4.2300. Pivot point is around 4.1100.

Technical analysis USD/PLN: in the following week we should see the successful test of 3.2750-3.2900 level (200 DMA and 50% Fibonacci retracement level) with the target of 3.3400. Breaking 3.3400 will change the medium term trend.

Technical analysis CHF/PLN. The breakout of 3.4650 should spur the move to 3.5000. It is possible that we can reach this level in the coming week. The comeback of stronger PLN is possible under . 34000 level.