Afternoon analysis 01.04.2015

The dollar dropped as the ISM report and the ADP data on employment change missed forecasts. A broad-based strengthening of the zloty.

After two sessions of the decline, the EUR/USD rebounded today. The common currency exploited figures on the sentiment in the industry. PMI reports posted quite good results that improved the view on the eurozone economy. Currently, we are observing a building of a broad expansion in the monetary union that is not limited only to the core countries.

Although Greece still has not reached an agreement with the country’s international creditors, recent comments from Athens are rather calming. This factor resulted in an easing of risk aversion in the broad market – which supported the euro and risk assets (including the zloty).

The Greek economy minister George Stathakis said in an interview with Skai TV that the accord will be signed next week. Although, we have seen many similar statements from the Greek government, one can not deny that there is some risk taking in the markets, what suggests some improvement in the sentiment.

US labor market slippage

Today's ADP data on employment change in the private sector missed expectations. Companies added only 189k workers – a result below expectations and less than 214k in the previous month.

For the first time since January 2014, the private sector hired less than 200k new workers. The ADP figures is a premise before the data on the employment situation – a report that is very important for the Federal Reserve. An increase of about 250k workers in the non-farming sector is expected, but given today's weak ADP figures a similar result may not be reached.

Moreover, the ISM index – the major sentiment indicator in the US industry – missed the forecast. The gauge dropped to 51.5 from 52.9 in the previous month. It was the lowest result since May 2013.

The first quarter of 2015 was weaker than the last three months of 2014 (a wider view on recent data concerning the US economy in our report yesterday). This situation has affected the Fed – although the central bank still pursues the plan to hike rates this year, it said that the pace of tightening will be rather slow.

If the coming data continues to disappoint, the Fed may be less willing to increase the cost of credit. As a result, the rebound in the EUR/USD may be extended. Moreover, the move would be strengthened if Greece finally reaches the agreement with creditors.

A stronger zloty

Today's data on the PMI report was weaker than it was projected and posted a lower result than in the previous month (more about the report in our morning commentary). This, however, has not managed to affect the zloty in a negative way – the Polish currency posted a broad-based increase against all its major pairs except the franc.

If a positive sentiment towards risk assets prevails, the zloty may continue to increase further. Moreover, when the Greek turmoil ends, the extent of the appreciation may be even larger. The EUR/PLN dropping below 4.00 zloty is a realistic scenario.