Daily analysis 04.04.2013:
Unexpected acceleration of asset buying in Japan. The yen is losing 200 pips to euro and to the dollar. Worse-then-estimated data from the U.S has been neutral for the USD so far. The market is still waiting for the Non-farm payroll report. Today in focus we have the ECB and BoE meeting. The Polish zloty is close to its 4.2000 strong resistance level.
Macro data (CET- Central European Time). Survey is supplied by Bloomberg unless otherwise noted:
- ◦ Before 10.00 CET: services PMI form the Euro Zone countries. Should not be much different form the preliminary data, and therefore have a limited impact for the market
- 10.28 CET: services PMI form the U.K (survey: 51.5)
- 11.00 CET: Euro Zone PPI inflation (survey: +0.2% m/m and 1.4% r/r)
- 13.00 CET: Bank of England decision on interest rates (no change is expected), and asset purchase (also unchanged at 375 billion pounds)
- 13.45 CET: ECB rate decision (no change is expected)
- 14.30 CET: ECB Mario Draghi conference
Bold Kuroda's decisions. Weaker data form the States. ECB conference
Hardly any market participants expected such an aggressive decisions on the first meeting with a new BOJ chief. Kuroda announced an unlimited in time asset purchase worth 7 trillion yen (73 billion USD) a month, whereas according to the median Bloomberg estimate, economists expected the amount of around 5.2 trillion. The central bank will be buying not only bonds (up to 40 years of maturity), but also, as Reuters reports, ETFs (1 trillion a year) and real-estate trust funds (REIT). All the assets connected with the Japanese yen surged. The decision spurred the stock market to soar (on better company earnings thanks to weaker currency and therefore stronger export), the JPY weakened around 200 pips to euro and to the dollar, bond yields dipped to a record low on more BOJ purchases. It is worth to note that the Japanese policy is relatively much more aggressive then the FED's (the amount is similar but the size of the economy is 3 times smaller). Futhermore the policy will be even intensified in 2014 (/eng/news/daily-analysis/daily-analysis-22-01-2013 ). There is a high probability that the yen will be weakening further, because both the BOJ and the government seem to be really determined to fuel some growth and inflation (reaching the 2 percent target).
Yesterday's weak data from the U.S (ADP and ISM) didn't move the dollar lower. However, if they are confirmed by a disappointing NFP report then we can expect some pressure on the greenback and therefore a slight rebound on the EUR/USD.
Today the main event on the European session will be Mario Draghi conference. I don't want to repeat the Wednesday's analysis (/eng/news/daily-analysis/daily-analysis-03-04-2013 ), but it is worth to note that the if the ECB chief does not give any signals on the future rate reduction (for example by underlying an intense discussion with other MPC members) then we can see EUR/USD to rebound. On the other hand broad talks on the easing can push the common currency below the recent lows.
PMI and BoE
The BoE will have to choose again between more QE to spur some economic growth but weaken the pound and import inflation or leave the policy unchanged and wait for more data. The market is betting on the second resolution – wait-and-see. In case of surprise we can expect the pound to slide around 100-150 pips. The services PMI are not suppose to have a major impact on the cable. Better-then-estimated should give some rebound – up to 50 pips (worse spur a similar slide).
EUR/PLN is testing 4.2000 resistance
We are slowly getting closer to the 4.2000 mark on EUR/PLN. It is important that we haven't closed above that level since July 2012. If it happens then we can get a strong buying signal on the main Polish pair. On the other hand the successful defense of the 4.2000 will strengthen the range trade (4.15-4.19).
Today's ECB conference should be neutral fo the EUR/PLN (more bold suggestion of the rate cut will increase the difference between the Polish and Euro Zone rates – positive for the zloty, but it will probably be leveled by a sentiment deterioration – negative for the PLN).
Theoretically more QE in Japan should give some boost to the currencies which are not affected by the “asset purchase case” (example: AUD or PLN). In lack of other impulses it suppose to give a sligth breath to the zloty in the short and medium term.
Expected levels of PLN according to the EUR/USD rate:
Expected GBP/PLN levels according to the GBP/PLN rate:
Technical analysis EUR/USD: despite a slight correction the technical situation hasn't changed. The goal for the EUR/USD around 1.2700 can be achieved even as early as till the end of the current week. Any rebound not exceeding 1.3000 should be used to open short positions.
Technical analysis EUR/PLN: we are trying to initiate a breaking up move from the range trade. If we move over 4.1900 there is a chance to attack 4.2300 and in extension even 4.3000 level. The alternative scenario is opening short positions under 4.1500 (low probability). The base case scenario is still the range trade (4.15-4.19).
Technical analysis USD/PLN: after more than a month when the buy signal was generated (2nd half of February, breaking 3.14 upside) we did finally reach the medium term terget of 3.2700. . Another resistance levels are 3.30 (highs of mid November 2012) and 3.33-3.35 range. The alternative scenario is short positions after closing the day under 3.2200 (38.2% Fibonacci retracement level and 200 DMA).
Technical analysis CHF/PLN: there is still a high probability that we continue the rising trend. The target for the franc is 3.48 (50% Fibonacci retracement level). The comeback to the range trade is possible after falling under 3.39-3.40.
Technical analysis GBP/PLN: a slight weakness on the pound does not negate the short term bullish trend. The base case scenario (short-term) is still move toward 5.0000 and an attempt to break it and change the medium term outlook. On the other hand a slide under 4.89 should be a trigger to close longs and under 4.85 to open new shorts (a come back to both short and medium term bearish trend).
This commentary is not a recommendation within the meaning of Regulation of the Minister of Finance of 19 October 2005. It has been prepared for information purposes only and should not serve as a basis for making any investment decisions. Neither the author nor the publisher can be held liable for investment decisions made on the basis of information contained in this commentary. Copying or duplicating this report without the written permission from Cinkciarz.pl Sp. z o.o is prohibited.
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