Daily analysis 29.04.2013

, author:

Marcin Lipka

EUR/USD is still above 1.3000. The common currency is supported by a new government in Italy and slight pressure on the dollar before the FED meeting. In the coming week, except the Federal Reserve statement, investors will be waiting form the ECB rate decision. The pound is holing last week gains after better then expected GDP reading. The Polish zloty is around 4.1500 before the key global events.

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

  • No major macroeconomic data in the calendar

The government in Italy and central bank decisions

Reports regarding a formation of a new government in Italy with Enrico Letta as a Prime Minister (after two months since election) gave some relief to the markets and pushed the 10 year government yields under 4% (lowest levels from more then 2 years). The encouraging information is also the name of Finance Minister – Fabrizio Saccomanni. According to Banca D'Italia website he was the central bank general from 2006 to 2012 and earlier held positions at EBC, IMF and BIS. Currently investors should be less concerned with the situation in Rome, unless the “grand coalition” fails to agree on major issues. The first good test will be lifting a property tax implemented by Mario Monti. As Bloomberg reports Berlusconi had already announced on TV during last weekend that the home levy would be canceled and refunded for the first home owners.

For the EUR/USD the key events will be central banks meetings this week. On Wednesday we are receiving FED statement on interest rates (no change in QE or reference rate is expected). During the May decision we don't have a press conference so investors will dig into the statement to get any clue whether the recent data (weak NFP and low inflation) had any impact on the FOMC (especially on the long term inflation – too low will support the QE for longer). On Thursday we get the rate decision from ECB. In recent days there are many reports that major investments banks are changing their estimates and heading toward 25bps cut (for example Goldman Sachs) mainly on weak recent data an on widely discussed Jens Weidmann interview for The Wall Street Journal – more info why it could had been misunderstood - /eng/news/daily-analysis/daily-analysis-18-04-2013 ). Additionally if we recall the recent Draghi conference it was really hard to find any indications that the ECB chief is heading toward the cut even though he was concerned that the economic improvement in 2nd half of the year is in question. In result I don't expect the rate decrease in May and additionally I doubt that Draghi will suggest the cut on the next meeting. A quarter percentage point change in the “money cost” will not change anything (monetary transmission mechanism is not working properly what is constantly underlined), so the cut could be rather seen as ECB's concern on the economy then a boost to the growth. A good indicator of the ECB willingness to help fight with the slowdown will be implementing a special, guaranteed, low rate loans to SMEs (on previous conferences there were some questions retarding that issue, so it is possible that the Central Bank has a kind of plan on the case).

The pound holds gains after the GDP reading

Better-then-expected GDP reading on Thursday pushed the pound higher. We are trading above 1.5500 now and there is an increasing chance that the bearish trend on GBP/USD will be soon reversed. The similar situation we have on GPB/PLN where we came back to the short-term bullish trend and now the pair is heading toward 5 PLN pivot. The next key data for the sterling is Wednesday's PMI reading. Investors should also watch for the other side of the trade – dollar which can be pretty volatile during the central banks announcements and NFP data on Friday.

Global issues and the rates

The Polish zloty is under pressure from weak economic data and speculations on interest rate cuts. However, during the current week I would expect that the PLN will be focused on the central bank decisions and jobs data form the U.S (similarly to the pound). I doubt that we fall under 4.1200 during the following days or rise over 4.17-4.18 (most of the bad data has already been priced in, but no positive impulse is also expected). It is also worth to note that next week we have the MPC meeting. There is virtually no chance that we get the cut in May (none of the members suggested it), but there is a small probability that in the statement/or during the conference we can get a clear signal that even 50 bps decrease is possible in June.

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

EUR/USD 1.2950-1.3050 1.3050-1.3150 1.2850-1.2950
EUR/PLN 4.1300-4.1700 4.1200-4.1600 4.1400-4.1800
USD/PLN 3.1700-3.2100 3.1400-3.1800 3.2000-3.2400
CHF/PLN 3.3700-3.4100 3.3600-3.4000 3.3800-3.4200

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

GBP/USD 1.5450-1.5550 1.5550-1.5650 1.5350-1.5450
GBP/PLN 4.8900-4.9300 4.9100-4.9500 4.8700-4.9100

Overall technical situation on the analyzed pairs:

Holding above 1.3000 on EUR/USD still favors bulls and can be a good starting point for the 1.3200 move. The GBP/PLN pair has the potential to rise toward 5.0000 and change its medium term outlook.

Technical analysis EUR/USD: the base case scenario of the EUR/USD is still bullish move tward 1.3200. On the other hand if it falls under 1.30-1.2950 (strong support and 200 DMA respectively) then we can expect the slide toward 1.2700


Technical analysis EUR/PLN: the move over 4.1600 last week resulted that the technical analysis supports a view with range trade between 4.15-4.20. The slide under 4.1200 will favors bears and rise over 4.20 bulls (the least probable scenario).


Technical analysis USD/PLN: the pair hasn't moved over 3.2000 so the preferable scenario is bearish trend with the target around 3.06 in the medium term. On the other hand breaking 3.20 to the upside will favor bulls with the target at 3.2700.


Technical analysis CHF/PLN: No changes on CHF/PLN. After sliding under 3.4000 we are in the well known territory (range 3.33-3.40). A sell signal should be generated under 3.3300 level. If the 3.3300 support holds then the base case scenario is range trade between 3.33 and 3.40.


Technical analysis GBP/PLN: Thursday's move from 4.86 to 4.93 did change the perception in the short term (form bearish to bullish). The target for the pair is 5.0000 and the probe to change the medium term sliding trend. On the other hand the slide under 4.84 will support the bears again.


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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