Afternoon analysis 05.08.2015

The ADP report missed the forecast. As a result, the dollar dropped against the euro and other major pairs. The zloty exploited a heightened probability that the interest rate hikes may be deferred. The Polish currency recouped the earlier decline.

The Federal Open Market Committee will decide on interest rates mid-September. The market consensus is that the US central bank will decide to lift the cost of the credit for the first time in almost a decade. However, the US central bank will decide on the basis of the outlook for inflation and the labor market conditions.

Today's figures on the employment situation have not supported the case for a hike in September. The ADP report on employment change in the private sector missed the forecast. Companies added 185k in employment, less than the 210k that was expected. Moreover, the prior month report was revised down.

The data release resulted in a weaker dollar. The US currency gave away gains that it had acquired after the comment from Dennis Lockhart. The Atlanta Fed member said it would take a severe deterioration of the economic landscape for him to postpone the interest rate hikes.

The dollar is very susceptible to all information regarding interest rate hikes. The tendency will be getting stronger as the September Fed meeting is getting closer.

The next key report will be the employment situation data on Friday. A 212k employment increase in the non-farm sector is expected and the unemployment rate is expected at 5.3 percent. Given the weak ADP report, the likelihood of a disappointment increased.

In addition, the trade balance report did not support the tightening scenario. The deficit stood at 43.8 billion dollars against the 43 billion expected. It was caused by the 0.1 percent decline in exports. It was the second decline in a row. On the other hand, the imports increased 1.2 percent. The situation is a result of the strong dollar.

Greece in upbeat tone

The Greek Prime Minister said the bailout deal will be signed soon. Earlier today, the information agencies reported some upbeat comments from both sides of the negotiation table regarding the recent progress.

It is quite surprising since earlier, there were some concerns regarding whether Greece will decide to confront its creditors once again. All in all, Greece is heading to a successful final of the negotiations that will unlock 86 billion euros from the bailout program. As a result, the nation will obtain money before the next payment to the European Central Bank, which is due on 20 August.

Retail sales in the eurozone disappointed by rising 1.2 percent against the 2.1 percent that was forecast. It rose 2.6 percent in the prior month. The PMI indexes from the eurozone countries were near their flash estimates, thus the reports did not affect the markets.

A stronger zloty

The zloty and the other emerging market currencies remained under the influence of the expectations for interest rate hikes in the US. Today's report lowered the likelihood of tightening. As a result, the zloty increased as the other emerging market currencies.

If the coming US reports continue to disappoint, the zloty may extend its recent gains. The employment situation report on Friday is currently the key report to watch.