Afternoon analysis 07.07.2015

, Autor:

Piotr Lonczak

Greece has not presented a new reform plan. Ahead of a key meeting of the euro zone leaders there markets were disturbed. The common currency extended losses. The zloty pressured by the risk aversion.

Earlier in the day, before the Eurogroup meeting, the Greek government was expected to give new reform plan, that will help to end the standoff. The Eurogroup Chairman Jeroen Dijsselbloem said a credible proposal is expected, that will help to safeguard the euro zone integrity. The German Finance Minister Wolfgang Schaeuble said it is up to Greece, whether the nation will remain in the euro zone.

There was even a proposal to provide bridge financing for Greece. The scheme would address the current capital control regime, that is hurting the economy. As it would allow to reopen banks and ensure disbursement of pensions and salaries.

Later the day, it turned out that the Greek government did not have any new plan. The new proposal is expected tomorrow. It was quite a surprise, given the situation in Greece. In the crucial moment the Syriza government is wasting time.

As a result, the likelihood for a positive outcome from today's meeting is very limited. There was some disappointment due to the new Greek finance minister. Earlier, Euclid Tsakalotos was viewed as a more conciliatory person, that would facilitate the negotiation process.

Limited hope for a progress negatively affected the market sentiment. The European and the US stock markets were in the red.

After calm session on Monday, the euro dropped significantly today. The EUR/USD moved to 1.09 - the lowest level since the beginning of June.

Exports dropped

Today's data from the US economy was not helping the dollar. Exports dropped by the most in three months. It declined 0.8 percent. As a result, the deficit exceeded the forecast. It rose 2.9 percent to 41.9 billion dollar.

The report is important in the context of tomorrow's publication of the Federal Open Market Committee minutes. The US central bank takes into account the developments in the dollar market in deciding on interest rates. If this factor continues to hurt the exports growth, it will provide the dovish part of the Fed with arguments to postpone rate hikes.

Weaker zloty

The zloty dropped on Tuesday. The Polish currency was lower against all its major pairs. The EUR/PLN exceeded 4.21 zloty to the highest level since January. The dollar hit 3.85 zloty, the highest since March. The franc hovered above 4.05 zloty.

Tomorrow the Monetary Policy Council will decide on interest rates. No change in the monetary policy is expected. However, any remarks on the zloty current level and its outlook may influence the Polish currency.

Limited probability for an imminent Greek deal will result in risk aversion in the markets. This factor will continue to hurt the zloty. As a result, the Polish currency will probably extend recent losses.

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