Afternoon analysis 19.03.2015

, author:

Piotr Lonczak

Market participants revamp expectations after the Federal Reserve move. Greece to seek compromise in Brussels. The zloty in the position to extend gains.

The Federal Open Market Committee has presented a clearly more dovish stance than expected before Wednesday's meeting. Although the 'patience' disappeared from the Fed's statement, the US monetary authority are not in a hurry to raise the interest rates (a wider view on the statement in our morning commentary).

Median forecast for the interest rates in the end of 2015 has been slashed to 0.625 percent from 1.125 percent in the previous forecast presented in December. The expectations for 2016 have been lowered to 1.875 percent from 2.5 percent previously. Currently, the main rates is set in the range between zero and 0.25 percent.

Before Fed's statement one could have thought that the drop of 'patience' will lead to interest rates hikes in June, but now it is not as certain as it had been before. The Fed said that it needs to be certain, that inflation will return to 2 percent goal in the short term and unemployment rates will continue to decline, before deciding to raise rates.

Just after the statement was released and the Fed chair Janet Yellen attended press conference, the EUR/USD increased sharply. But later the major currency pair dropped to 1.0660. Nevertheless, the EUR/USD will rather return to growth after volatility declines.

The number of new unemployed persons increased 1k to 291k – a result slightly below expectations. Today the reading had no influence on the EUR/USD.

Greece returns to Brussels

During today's European Union summit the lawmakers will address the stand-off between Greece and the Eurogroup. Last month both sides have agreed that Athens will receive next aid disbursement in exchange for reforms. But later, Alexis Tsipras's government has tried to dilute its commitments and receive money from the EU at the same time.

The actions from the Greek government are worrying. The nation faces liquidity crunch within few week if fails to convince its European partners to provide support. Today prime minister Alexis Tsipras will try to convince ECB president Mario Draghi, the German chancellor Angela Merkel and the French president Francois Hollande to allow the country to use austerity financing.

Yesterday the European Central Bank decided to increase the limit in emergency liquidity assistance for Greece by 400 million euro – less than country asked. The Greek banking sector faces tensions due to deposits withdrawal as creditor's clients are afraid that the country may go bankrupt. Moreover, the ECB suspects that Greek banks may use money from ELA to finance government – what would have been a violation of the EU law.

Greece may again become the major risk factor for the eurozone. Until now, the market's attention has been focused on the Federal Reserves. This factor may impede the EUR/USD rebound scenario.

However, a positive development for the euro zone was the result of the third TLTRO tender conducted by the ECB. Banks mad bit for 97.8 billion euro – more than 50 billion anticipated. This shows that creditors see potential in demand for credit, what is next sign that the euro zone economy is getting better.

Zloty may gain

Given more dovish stance of the Federal Reserve than previously anticipated, the risk currencies may increase. As a result, the zloty may recoup some losses against the dollar and may extend its gains against the euro and the frank, if the broad market sentiment is favorable for the risk assets.

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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