Daily analysis 18.10.2013

, author:

Marcin Lipka

EUR/USD goes bravely to the level of 1.3700. The main currency pair is supported by increasing likelyhood of prolonging QE beyond December. The zloty remains stable towards euro, however, there are two-year lows on USD/PLN. The minutes after last RPP (Monetary Policy Council) session.

  • The most important makro data (CET- Central European Time). Survey is supplied by Bloomberg unless otherwise noted.
  • No key macroeconomic data today

Further up. A hawk on QE. Labor market

Yet another week of week dollar is now behind us. This obviously influences the increases on EUR/USD up to the level of 1.3700, close to this year's highs. Just as it could be suspected, the market makes up a new scenario in a repsonse to tapering and tries seize opportunities for further highs.

Beginning with the makro data, the Chinese GDP has been revealed tonight for Q3 as has the report of industrial production and retail sales. All readings were in line with forecasts. The Chinese economy is growing at 7.8 percent (thanks to the real estate investements). The remaining data were just as good and both production and sales were at above 10 percent. The Chinese case is set up at least until the year's end. The threat of economy growing at less than 7.5 percent passed and should disappear from the headlines.

The headline that should not disappear is the case of withdrawing from quantitative easing by the FED. Outstanding data from the American labor market for September is to be published on October 22. The market is suggesting that the data will be of limited meaning (however, in case of significant revision of the latest months that meaning may increase). What is even more interesting, the October's payrolls (to be published on November 8) can be affected by latest fiscal problems and the government shutdown. Before the December FOMC session there will be one "clear" NFP report. Will it be enough to make a decision about tapering until the end of the year? It seems less and less likely. Yesterday's Richard Fisher speech was also interesting in that context. The Dallas Fed's regional president (a hawk with the right to vote in 2014). He criticized the prolonging monetary stimulation (which can for example build bubbles in the stock market or real estate) but added simultaneously, that (taken from the Wall Street Journal and the "Fisher Says Fed Stimulus Won't Work Amid Fiscal Fog" article): “I don’t like the [monetary policy] course we’re on, [but] given all this uncertainty (concerning mainly the economy and the government shutdown - author's note), it’s hard even for me to argue to change the course". Fisher's suggestions can have influence on other FOMC members and prolong the full quantitative easing until 2014 Q1.

In summary, the dollar is still under pressure and this situation can be factual for some time. It will be hard for us to end over the lovel of 1.3700, but playing along with the Tuesday's labor maket data can result in the increase of over tens of pips at the beginning of the week.

Global dollar weakness visible also to USD/PLN

The EUR/PLN remains stable and is now arouynd 4.1700. Much more interesting is the USD/PLN situation. There are 2 grosze left to two-year lows and 4 grosze to test the level of 3.0000 downwards. The investors take long positions on USD/PLN and will try to preserve that level, however, in case of the increase on EUR/USd to 1.3800 it will not be easy and even a test on 2.9000 is possible (such movement should also push EUR/PLN by a few grosze down to 4.15).

In yesterday's minutes from Monetary Policy Council's meeting there were no strong suggestions as to the monetary policy (as prof. Belka said during the last conference). It is worth mentioning, though, to quote some sentences from the last Council's discussion: "In Council's opinion, further fluctuations of interest rates will be subject to the scale and structure of the economy recovery and the resulting level of inflationary pressure. Some of the Council's members indicated that the future monetary policy should also take the expectations of the shape of fiscal policy into consideration".

The baseline scenario until the end of the day is still the stabilization on EUR/PLN around 4.1700 and around 3-04-3.05 on USD/PLN. In case of the weak NFP reading on Tuesday the test of the 3.00 level on USD/PLN cannot be excluded.

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

Range EUR/USD 1.3550-1.3650 1.3650-1.3750 1.3340-1.3550
Range EUR/PLN 4.1600-4.2000 4.1600-4.2000 4.1600-4.2000
Range USD/PLN 3.0400-3.0800 3.0100-3.0500 3.0700-3.1100
Range CHF/PLN 3.3600-3.4000 3.3600-3.4000 3.3600-3.4000

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

Range GBP/USD 1.5950-1.6050 1.6050-1.6150 1.5850-1.5950
Range GBP/PLN 4.9100-4.9500 4.9300-4.9700 4.8900-4.9300

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 Sp. z o.o is prohibited.

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