Daily analysis 12.02.2015:
The zloty increased after announcement of cease-fire in Ukraine. Greece without a breakthrough. The Polish currency may gain further.
The negotiations between Russia and Ukraine its European partners France and Germany resulted in a cease-fire agreement. The peace deal would be valid on Sunday, February 15. The announcement has been made by president Vladimir Putin. That is a bit surprising as Russia has denied any involvement in the fighting in eastern Ukraine.
A similar peace agreement was reached in September 2014, but it later has been violated. As a result, there is some uncertainty, whether the deal will be permanent.
Investors were pleased by this information. The rubble gained against the dollar – the USD/RUB dropped to its lowest since late January. Moreover, currencies form Central Eastern Europe – the zloty, forint and the Czech koruna – also posted gains.
The positive sentiment stemming form Minsk deal may open the way for steeper gains of CEE currencies. Nevertheless, the cease-fire is to be tested starting Monday. If pro-Russian separatists continue fighting as they seized new territories, the market will be disappointed.
A failure to keep cease-fire will force the European Union to impose additional sanctions on Russia. Moreover, the United States will likely provide military support for Ukraine. The economic and political consequences of a similar scenario would be damaging for the region. Given that, the investors will be prone to every information on agreement violation.
Ukraine won tow successes today. The International Monetary Fund said that the country will receive a four-year 40 billion dollar aid package.
There was no positive information form Brussels. However, laconic statements form politicians after the summit pointed at a some closing of positions. The negotiations are to be continued on Monday – a proof that both sides are willing to reach a final deal.
Nevertheless, there is a lot of uncertainty concerning the future of Greece. It is not clear whether the country will have enough sources to fund its normal operations as bailout expires in the end of February. Unofficial rumors said that there is a plan to provide funding for Athens after bailout expires. As a result, the gloomy scenario of country's default is less probable.
To sum up, the Greek crisis is to drag on until Monday, and there is no certainty whether a final agreement will be reached. However, investors' reaction is rather neutral – the EUR/USD was little changed near 1.13 – the level it has been holding since the beginning of the week.
The zloty may gain
Cease-fire in Ukraine and financial support for the nation from the IMF reduces risk aversion in the region. In addition, the postponed negotiations on Greece is currently neural for the markets. Given current circumstances in the broad market, the zloty may continue to gain. Moreover, the Polish currency may be strengthened by tomorrow's GDP report (3.2 percent growth projected).
Next week the durability of cease-fire in Ukraine and flexibility of Greece and the EU will be tested. If situation moves closer to a positive end, the zloty may extend recent gains.
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