Afternoon analysis 29.05.2015

, author:

Piotr Lonczak

The dollar dropped on the weak economic indicators. The euro exploited the weakness of the US currency and relief in the Greek uncertainty. The zloty increased against all its major pairs, except the Swiss frank.

Greece presented an optimistic scenario for the negotiation final. The latest comment from the government said that a deal with country's international creditors may be signed before Sunday. However, the confrontation of the statement with the view of the European lawmakers has dispelled the hope for an imminent deal.

Although lawmakers agreed the negotiation process has accelerated, there is still many unsolved issues. The major discrepancy is the labor market and reform plan and proposals for the pension system overhaul.

In the meantime, the Greek government is expected to pay the 300 million euro International Monetary Fund bill due in the next week. The next month Greece has to repay as much as 1.6 billion euro. Currently no one knows whether Athens will have enough funds to meet the IMF obligation.

The IMF stance is categorical. Yesterday the IMF Spokesman William Murray warned if Greece does not pay the bill, the Washington-based institution will shut financing for the nation. Moreover, the IMF Chair Christine Lagarde said Greece leaving euro zone is feasible.

Deposit's withdrawal

Increasing speculations about the country leaving the eurozone put additional pressure on the banking system. The tendency has been strengthened by the idea of a parallel currency, that was suggested even by the German government officials. In April the deposit level dropped 0.3 percent from the previous month. As a result, the value has reached the lowest level since September 2004.

Anyhow, the market sentiment was supported by comments of Vitor Constancio from the European Central Bank, who said that even if Greece goes bankrupt, it will not automatically lead to default of the Greek banking system. As a result, the banking system will be able to get funding from the ECB, even if the IMF bill is not payed. Thus, the Greek government will have time until the end of the month to reach a deal (more on the issue in our morning commentary).

Weak dollar

Some relief in the market due to positive information regarding Greece has allowed the euro to rebound. Otherwise, the dollar was hit by the economic data. As a result, the EUR/USD posted its third increase in a row.

The GDP revision was supportive for the dollar. The GDP dropped 0.7 percent - less than the minus 0.8 percent that was expected. However, the quarterly PCE inflation data was below the forecast.

Later the Chicago PMI index missed the forecast. The measure of expansion in the Chicago region dropped to 46.2 from 52.3 in the previous month. A result below expectations. Some improvement in the household sentiment data has not helped the dollar.

Now the focus shifts to the next week economic releases. The most important release among other will be labor market data scheduled on Friday. Readings will help to better assess whether the economic slowdown in the US has been transitory or not.

Strong franc

Friday's session is quite successful for the zloty. The Polish currency posted gains against all its major pairs. Only the Swiss frank remained strong. It was caused by the drop in the EUR/CHF.

The zloty increase was spurred by the easing risk concerning the Greek crisis. Moreover, some domestic factors were helpful. The GDP data were revised up (more on the issue in our morning commentary). In addition, the president elect revealed some detail on his pension system reform plan, that were rather modest. Given the situation, the zloty may extend its rebound.

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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