Daily analysis 06.08.2013

Despite solid ISM reading in the US the dollar didn't gain much value and we are sill around 1.3250 on the EUR/USD. Interesting on the pound and the Aussie. Positive sentiment toward the zloty. Foreign institutions on the Polish currency.

• Macro data (CET- Central European Time). Survey is supplied by Bloomberg unless otherwise noted
• 11.00 CET: GDP from Italy (survey: minus 0.4%)
• 12.00 CET: factory orders from Germany (survey: 1.0%)

EUR/USD was resilient to the stronger ISM

Yesterday we had a pretty calm session. Investors were resting after full of emotions last week. On Monday only two figures were important: final PMI readings and the ISM. The managers' index from the largest European economies was close to preliminary data and economists' estimation. On the other hand we had much-better-than expected reading from the States. The ISM exceeded analysts' surveys and soared over 12-moths high (56 points.). It is worth to note that the dollar didn't gain much value despite the solid data. It was partly due to lower then in June employment sub-index (in May we had even a slide close to 50 points mark). Digging more deeper into the EUR/USD situation we can draw two scenarios. The first one can show that part of trend setters institutions don't want to allow the EUR/USD to slide too much and later they plan to use the favorable conditions to push it further north – toward 1.34. The second idea can be quite opposite. The dollar bulls are slowly accumulating the greenback and when there is a “risk off” environment they will push the EUR/USD much lower (under 1.32).

In the meantime there are also interesting developments on the other currencies. Firstly it is worth to look at the British pound which had been shorted for a long time. There were several reasons behind the negative sentiment toward the cable. Investors were anticipating for a long time that the Bank of England would increase its asset purchase program. Additionally the UK economy was quite weak and there were very few signs of a future rebound. Recently the situation has been changing. It was clearly seen yesterday when the PMI reading soared to almost 7-year high and topped 60 points. Tomorrow the new BOE chief, Mark Carney will have an opportunity to present his forward guidance. If the market accept the new monetary policy quite calm then we can expect the further rebound on the Pound. The second interesting story is the Australian dollar. The, so called, Aussie dropped in recent moths by more than 10 percent mainly due to weaker demand on commodities from Asia, tapering prospects in the US and rate cuts by the RBA. Currently, however, the negative data has been mostly priced in and we can expect a longer correction on the AUD pairs.

Summarizing the EUR/USD has the opportunity to continue the rising trend. Contrary, if the base scenario fails, and we drop under 1.32 level, the slide can increase significantly.

Strong zloty. Foreign institutions on the Polish currency

The zloty is gaining value thanks to a positive sentiment toward some EM currencies (Investors have started to differentiate “better” and “worse” EM basket). At the end of July I cited two institutions which were bullish toward the PLN - Oppenheimer Currency Opportunities Fund and Ashmore Group. As Bloomberg reports also “Templeton likes zloty”. John Beck, a co-director of global fixed income claims that “We've had the opportunity to take a littler bit more exposure to some currencies that saw a sharp shakeout after the Fed's tapering comments, but we fell have reasonable value. There are also some comments on the zloty from CitiFx strategist Steven Englander. He says that basket of long PLN, ILS, MXN and PHP and short CAD, RUB, AUD and ZAR has “admirable consistency of performance”.

Summarizing the odds are increasing that we will try to slide below 4.20 on the EUR/PLN, especially when the good sentiment to the zloty lasts for longer and the EUR/USD does not drop. Currently, however, there is still higher chance the we will be trading above the key support level.

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

The EUR/USD is still bullish. All Polish pairs are in bearish trends.

Technical analysis EUR/USD: the bullish positions are still preferred. We have recently touched the 1.33 a few times (resistance) The next target is 1.34 (also quite strong resistance). Alternatively the slide under 1.31 prefers the shorts.

Technical analysis EUR/PLN: we have reached the first target around 4.22. If the strong support around 4.20-4.22 is broken then the EUR/PLN can slump even toward 4.10-4.13. Alternatively the rise over 4.28 is a buy signal

Technical analysis USD/PLN:A fall under 3.28 was a sell signal. The USD/PLN target at 3.18-3.14 is almost reached. The next one is around 3.05. A comeback above 3.26 again favors bulls.

Technical analysis CHF/PLN:the first target was reached at 3.42. The strong support is around 3.40. If it falls under 3.40 the next target is around 3.33. Alternatively a rise over 3.48 is a buy signal.

Technical analysis GBP/PLN: the sell signal was generated after sliding under 4.97 with a target around 4.9 (already reached) and in extension even toward 4.8. Alternatively a rise over 5.00 is an indication of bulls' return.