Daily analysis 14.07.2015

, author:

Marcin Lipka

Greece is still attracting a lot of attention, but much more trouble is going to be seen in the coming weeks rather than in the coming days. Iran's deal could be negative for currencies of oil exporting countries. The zloty remains stable to the euro and slightly weaker to the dollar and Swiss franc.

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

  • 14.30: Retail sales from the US (survey: +0.3% m/m; excluding oil and cars: +0.5% m/m).
  • Tomorrow at 4 am: GDP from China for Q2 (survey: +6.8% y/y); Retail sales +10.2% y/y for June and industrial production +6.0% y/y.
  • News from Greece especially regarding the condition of coalition and voting required by creditors acts.

Greece is still attracting attention

Despite the fact that on Monday morning the deal with Greece was signed more troubles may lay ahead. Only when all of the acts are agreed on by Syriza and the new ESM negotiations are finished we can expect a longer period of stability.

Shortly after the deal with the euro area leaders was agreed the Eurogroup meeting was held. This morning all EU finance ministers gathered in Brussels to discuss how to deliver the bridge financing to Greece worth around 12 billion euro. The money is essential for repaying loans to the ECB and the IMF.

Wednesday's voting on the reform package which includes changes in VAT, the pension system or should include automatic spending cuts is going to be implemented successfully. It would be, however, the first test for Tsipras who should unite his coalition and try to strike a deal using a governmental majority. It would also be helpful when Greece starts negotiating with the Eurogroup on the ESM program.

In the coming weeks we will see quite a lot of problems. Especially regarding the ideological issues inside Syriza – privatization, a more elastic job market, lower administration costs or the creditors control on Greece's budget. If things go bad it may push a resignation and a new election could be held. The riskiest outcome from early voting is more hardliners in the parliament which can torpedo the deal with creditors. It may push the whole process to the beginning and bring more discussions about Grexit.

The deal with Iran

After two years of negotiations the deal is going to be signed today. It creates more risk to the oil market. Teheran is expected to increase the crude oil export despite the fact that currently the production significantly exceeds demands and OPEC countries are fighting for the market share with the US.

Additionally, it is estimated that Iran has around 30-40 million barrels of oil in super tankers. It will be the first element pushing the oil prices lower in the coming weeks.

If no new issues appear in the Middle East, we can expect the oil to be put under pressure for the coming quarters and the slide towards this year’s lows is expected especially that inventories in the US will start increasing again in the fall.

It is a negative message for currencies dependent on oil export. Those especially under pressure may be the Russian ruble, Norwegian krone and Canadian dollar. If WTI or Brent drops toward lows we should expect that one US dollar may be worth even 65 RUB, more than 9 NOK and 1.3 CAD.

The foreign market in a few sentences.

The session today should be much calmer regarding Greece. Tomorrow the first set of parliamentary voting is scheduled. More attention should be attracted to the US retails for June. If the reading excluding gasoline and cars is significantly higher than 0.5% m/m then the EUR/USD will be able to close the day below 1.10.

Zloty is around balanced level.

As we suggested yesterday the balance level for the EUR/PLN in the current situation is around 4.15. If Greece manages to vote for the first acts in parliament the first installment is expected by Athens to restart the country and banking system. It would give around a 0.5% boost to the zloty.

To see stronger appreciation we should wait for better data from Poland (Friday – retail sales and industrial production) or a relatively dovish Yellen hearing before the US Congress. It should also push the EUR/PLN below 4.12 at the end of the week.

On the other hand, if the Greece administration fails to accept the first set of reforms (currently a very low probability) then the zloty is expected to lose value and the EUR/PLN would be above 4.20 and the dollar could top 3.85.

Anticipated levels of PLN according to the EUR/USD rate

Range EUR/USD 1.0950-1.1050 1.0850-1.0950 1.1050-1.1150
Range EUR/PLN 4.2000-4.2400 4.2000-4.2400 4.2000-4.2400
Range USD/PLN 3.8200-3.8600 3.8500-3.8900 3.7900-3.8400
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 1.5450-1.5550 1.5350-1.5450 1.5550-1.5650
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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