Daily analysis 06.07.2015

, author:

Marcin Lipka

Greeks reject the plan offered by the creditors. The surprising resignation of Varoufakis, the minister of finance. For now, there are calm reactions on the market. The zloty stays under the events happening in the Hellenic Republic but for now the reactions are moderate.

Macro data (CET- Central European Time). Survey is supplied by Bloomberg unless otherwise noted.

  • Throughout the whole day the reports on Greece and particularly the information after the evening Merkel-Hollande meeting.
  • 16.00: Service ISM from the USA (survey: 56.4 points).

Threat of chaos

The Greeks rejected the savings program imposed by the creditors. Additionally, there were more than 20 percentage points of those who believed in the populist prime minister than supporters of the reform. This puts into question the possibility of having an agreement with the scenario of Greece staying in the eurozone.

Moreover, the market is starting to convince itself that leaving the area of the joint currency by the Hellenic Republic is going to be the base case scenario. More and more investment banks imply that the eurozone is going to reject one of its members.

On the other hand, the investors have calm reactions to the events happening in Athens.The euro weakened compared to the majority of currencies, only at the beginning of the Asian session. Then the losses were slowly made up and after the information that the minister of finance in Greece had resigned from his position, the main currency pair approached the level of yesterday’s close.

For a short time, it would be positive for the EUR/USD if Greece stayed in the eurozone. However, in that case the carry trade would revive easily, which would cross out the chances for further appreciation of the common currency. The pressure on the euro-dollar may appear in the scenario of more chaos both in the areas of the creditors and Athens.

If it appears that there is a break in the French and German approach to the situation of Greece, the market would be able to assess this as the European weakness of solving problems. The stocks of peripheral countries (Italy, Portugal, Spain) would loose a lot in this scenario. This could result in a significant decrease of the market in the old continent and consequently weaken the euro. This could happen because of the speculations regarding the possible increase of the QE programme by the ECB (European Central Bank).

The market would also be worried about the situation in Greece. If banks are closed for the next couple of days, it is possible that there will be riots in the country. All the victims may disrupt the strategy of each of the parties that take part in the negotiation process. This may result in further unexpected events, which would obviously increase the overall risk aversion.

Important next few hours

In the afternoon there is going to be the Merkel-Hollande meeting. The Chancellor of Germany has the main role in this conflict. She will probably be the person who decides when the sides will come back to negotiations. In the base case scenario it will probably result in the returning to talks and Athens presenting their proposal.

However, there are serious problems with this. A fast approval of the creditors of Athens may be a visual defeat. The market would be seen as 'peace buying'. On the other hand, it is difficult to expect that, Tsipras would soften his demands for debt cancellation. He would be accused of not fulfilling the promises after the referendum and Greece would be forced to have a few more years of savings.

Foreign exchange market in a few sentences

Except the issues strictly connected to the negotiations, there are also the reports of the possibilities that may be done by the Federal Reserve. BNP Paribas claims that the issues happening with Greece may postpone the term of the first rate increase to December. It seems that only serious tensions of the old continent market would lead to the change of the overseas monetary system in overseas countries. That issue would affect the weakening of the euro more than the dollar.

The market will focus on the information from Europe. In the short term, the smaller the chances of coming to an agreement, the higher the chances of a EUR/USD decrease. The market will closely observe whether the current situation affects the economic condition of the eurozone and causes the need to implement further actions by the ECB in the debt market. It would be a signal to a deeper decline of the common currency even in the area of this year's lows.

Zloty under pressure

Today's session is practically a copy of what happened last Monday. The zloty lost in value just after the trade opening in Asia but it was stabilised when the European stocks started trading. The EUR/PLN and CHF/PLN came back to the levels of Friday's closing.

The pressure on a national currency will remain pending for the time while the Greek issue is unsolved. It is not important for the zloty whether the Hellenic Republic leaves the eurozone or not. It is important that Athens is not the reason for the increase of the aversion to risk, the strengthening of the peripheral bond yields or the decrease of the foreign stock exchange markets.

In the upcoming hours the pressure on PLN may persist. It should be seen on the US dollar which will probably lead to 3.85. The Swiss franc should be stronger as well, which may exceed 4.05. The euro should be the most stable currency and the zloty may slightly depreciate comparing to the common currency.

Anticipated levels of PLN according to the EUR/USD rate:

Range EUR/USD 1.1050-1.1150 1.0950-1.1050 1.1150-1.1250
Range EUR/PLN 4.1700-4.2100 4.1700-4.2100 4.1700-4.2100
Range USD/PLN 3.7500-3.7900 3.7900-3.8300 3.7100-3.7500
Range CHF/PLN 4.0000-4.0400 4.0000-4.0400 4.0000-4.0400

Anticipated GBP/PLN levels according to the GBP/USD rate:

Range GBP/USD 1.5550-1.5650 1.5450-1.5550 1.5650-1.5750
Range GBP/PLN 5.9000-5.9400 5.8600-5.9000 5.9400-5.9800

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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