Afternoon analysis 27.05.2015

, author:

Piotr Lonczak

The euro was pressured by the Greek uncertainty. Greece will most likely miss a deadline for a deal with creditors set by France and Germany. The zloty declined against its major pairs on risk aversion and political uncertainty.

Greece will likely miss a deadline for a deal with its international creditors that was set by France and Germany. In the previous week French President Francois Hollande and German Chancellor Angela Merkel said, the Greek government is expected to broker an agreement until the end of the month. The information was given by the Bloomberg agency citing the unofficial sources.

The market sentiment remained grave in spite of the Greek finance minister Yanis Varoufakis saying the country is going to make repayment to the International Monetary Fund. He said an agreement will be signed before June 5. As a result, the government will obtain money that will allow it to pay the 300 million euro IMF bill - the very first repayment from 1.5 billion due next month.

Today the Greek officials continued to negotiate with the international creditor's experts. Greece will be likely a major topic on the sidelines of a Group of Seven Gathering. Given the situation, the US government may involve in the negotiations (more on the issue in our morning analysis).

The European Central Bank left the Emergency Liquidity Assistance limit unchanged - the information agencies said citing unofficial sources. Greece has not requested to raise the ceiling as the nation still has 3 billion euro available liquidity. Until now, the Greek central bank has provided 80.2 billion euro in the ELA scheme for nation's banks.

All sides by the negotiation table agree that a Greek exit from the eurozone would be a disaster. Therefore, it is not certain whether the country will leave the monetary union, even if Athens goes bankrupt. However, it is not very likely, the politicians will accept a similar solution.

Still, until the status of Greece is clear, the euro will remain under the pressure. The common currency dropped to the lowest level since the end of April.

The major currency was pressured by the outlook for the Federal Reserve rising interest rates. Comments from Fed's officials suggest the monetary authorities are not worried by recent weakness of the US reports. Moreover, yesterday's data on the durable good orders and housing market were quite good, what resulted in a stronger dollar.

Zloty pressured

The outlook for Greece going bankrupt negatively affected emerging market currencies. Ongoing negotiations are leaving broad scope for negative scenarios. As a result, the Swiss franc posted strong gains.

The USD/PLN increased to the highest level since March 20. The franc remained near PLN 4.00. Still, in the second part of the day the zloty managed to recoupe some of its earlier losses.

The zloty was hit by the political risk. The outcome of presidential election has been read as a premise before general voting later this year. If the parties that have declared a will to undo pension system reform wins, the public finance may be deteriorated. Moreover, there has been some rumors the National Bank of Poland president may resign (more about this issue in our morning analysis).

Until the Greek crisis is ended, this factor will limit the zloty's appreciation potential. Mixed economic reports released last week also pressured the Polish currency. The zloty will remain susceptible to risk aversion with a tendency to drop.

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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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