Daily analysis 16.05.2013

EUR/USD is again lower (currently around 1.2860). Weak data from Europe and the U.S. is shifting the capital flow to the dollar. Today we have a set of inflation data from EuroZone, Poland and the U.S. The Polish zloty is still under pressure and heading toward 4.2000 level.

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

• 11.00 CET: CPI from EuroZone (survey: minus 0.1% m/m and 1.2% y/y)
• 14.00 CET: core inflation from Poland (survey: minus 0.4% m/m and 0.9 % y/y)
• 14.30 CET: CPI from the U.S. (survey: minus 0.3% and 0.2% y/y)
• 14.30 CET: U.S jobless claims (survey 330k)
• 14.30 CET: Building permits form the U.S (survey 941k).
• 14.30 CET: Housing starts from the U.S (survey 970k).

The dollar is stronger again. Inflation data

On Wednesday we had another sell of on EUR/USD. We briefly moved below 1.2850 but then the market slightly rebounded. When we look at the chart we can see that the downside move started a week ago. In my opinion, however, fundamentally the signal was initiated a week earlier. The ECB rate cut with some suggestions on negative rates and much better then expected NFP data from the U.S put the pressure on the pair both from the dollar and the euro side. Since that moment, with short breaks, we have slided around 400 pips. The global greenback strength is also visible on other pairs – GBP/USD, AUD/USD or emerging markets currencies. It seems that the trend should be extended especially if we get a correction on the U.S equities. I have been noting for months that American stocks should stay bullish for longer. However, taking into account that S&P 500 has risen 16% YTD and 25% in 12 moths it is impossible to continue such a surge in the longer time, especially that one of the main driver (also on the psychological side) – the FED asset pruchase program – will be probably trimmed in the following months.

Getting back into the short term situation today we are receiving inflation data both from the U.S and the EU. Higher/lower inflation in Europe should push higher/lower the EUR/USD respectively. The U.S prices report will the the opposite effect on the pair. The data, however, will not change the trend. It can either slower it or push the EUR/USD further lower.

The zloty is weaker again. Budget deficit beyond the plan

Yesterday we had another down-day on the zloty. It is both the result of worse overall global sentiment (EUR/USD slide) and weak data form the home economy. It is also worth to note that on Wednesday we received data on the budget deficit. The shortfall accounts for 90% of the yearly plan. The problem is not here with the number itself (usually the deficit is much larger at the beginning of the year) but presented a month ago revised plan for the budget accounted that after April the shortfall was supposed to be 84.% (the result is around 1 billion PLN higher then expected just a month ago). In the coming months the deficit will slide, but the pace will not be as fast as previously expected. It is another indication that the budget revision is unavoidable.

It is possible that till the end of the weak EUR/PLN bulls will try to test the 4.2000 mark. It is much more probable that the resistance will hold. In the alternative scenario (breakout) we can anticipate the move to accelerate significantly.

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

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

Overall technical situation on the analyzed pairs

No changes on the technical analysis. The target is currently 1.2800 on the EUR/USD and in extension 1.27. On Polish pairs: USD/PLN and GBP/PLN – bullish; EUR/PLN range; CHF/PLN dovish.

Technical analysis EUR/USD: the EUR/USD continues the slide with the target around 1.2800 (lows from March and April). Further we should see test of 1.2700. If breached then the bullish trend from mid July last came to the end.

Technical analysis EUR/PLN: the base scenario is still the range trend (4.12-4.20). Alternatively the breakout above 4.20 should generate fast move toward 4.25-4.30.

Technical analysis USD/PLN: the 3.27 target is still in place with extension to 3.3300. A comeback to the sliding trend is possible after falling below 3.18 (low probability currently).

Technical analysis CHF/PLN: the slide on CHF/PLN has been paused . If we move above 3.3700 then the recent break down was false and the we should again remain in the range trade (3.33-3.40). The base case scenario is test of 3.2700.

Technical analysis GBP/PLN: the short term target for the pair is a move toward 5.0000 and an attempt to change the mid term trend to rising. The breaking above 5.0000 should initiate the move toward 5.1000. The alternative scenario is a move under 4.85 where bears should take the lead.