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Afternoon analysis 28.06.2016

, author:

Marcin Lipka

The European Union representatives are presenting a consistent strategy towards the United Kingdom. This may cause the risk aversion in the market to increase yet again. The zloty continues its growth from the morning. However, the risk of return to the depreciation tendency may increase.

Firm standpoint of the EU

From the investors point of view, as well as condition of the emerging markets currencies, it would be for the best that negotiations between the UK and the EU run quickly and without problems. Moreover, the final resolution should be as near as possible to the current one. However, chances for this scenario are limited.

Before the EU summit, Angela Merkel said in the parliament that, “the United Kingdom cannot have privileges without accepting the obligations.” The German chancellor also said that, “I do not want to divide the European Union into the euro zone and others.” This may cause difficulties in diplomatic attempts of the UK to make allies among the states that are not within the euro zone.

Merkel spoke about the unity of the entire EU in her comments from before the summit as well. The Spanish prime minister claimed that he wants, “the EU members to continue to integrate.” Moreover, he said that, “nobody can give demands to the EU.”

The message coming from other smaller states seems similar. President of Lithuania sees the necessity of an increased union. On the other hand, the prime minister of Holland claimed that, “the United Kingdom should take care of its own policy, before it initiates the exit procedure.”

The EU suggests that it is the United Kingdom's move now. London should activate the Article 50 that initiates negotiations regarding new relations between the EU, and the country that leaves it.

As we know from Cameron's previous comments, he does not intend to initiate the formal exit procedure. It would be the task of a new prime minister. The comment from the Conservative Party suggests that he or she will probably be elected before September 2nd.

Today's comments from George Osborne may be significant as well. Just like David Cameron, he did not want to question the result of the referendum, as well as speculate about repeating it, or blocking it by the parliament. Thus, the matter of avoiding Brexit seems very unlikely for the time being, despite speculations in the media, as well as comments from some of politicians.

Consolidation of standpoints of both parties, slow negotiation process or a real risk of the United Kingdom breakdown, are most likely to burden the global sentiment, as well as the pound. Today's rebound may be temporary. Investors will soon recall the problems of the United Kingdom, negative results for the EU, and an increase in uncertainty for the worldwide economy.

Zloty sustained its growths

Price of the euro within the range of 4.42/43 PLN, as well as the USD/PLN near the 4.00 level, are a result of better global sentiments that are related to a rebound on the pound. However, considering that at least some of growths on the GBP/USD were caused by rumors regarding preventing Brexit, it seems unlikely that the pound will continue to appreciate clearly.

Therefore, if there is no crucial information regarding Brexit, it will be unlikely for the EUR/PLN to go below the 4.40 level, as well as the CHF/PLN to test 4.05. However, there is a danger that fear regarding negative consequences of Brexit for the entire continent, will return quickly.


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 Cinkciarz.pl Sp. z o.o is prohibited.

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