Afternoon analysis 08.04.2015

The dollar dropped before the release of the Federal Open Market Committee minutes. Mixed data did not affect the euro. The zloty managed to extend gains after very successful Tuesday.

Today's reports from the eurozone were rather mixed. The data concerning the booking growth in the German industry missed the forecast – it dropped as much as 0.9 percent on a monthly basis – clearly a worse result than the plus 1.5 percent projected. In the previous month, the order amounts dropped 2.6 percent (revised from minus 3.9 percent).

The reading on industrial orders is a premise before tomorrow’s release concerning the industrial production growth. An increase of 0.9 percent is expected. However, given the booking data, a similar result may be difficult to attain.

Nevertheless, the data concerning the industry is not coherent with sentiment reports. In March, the PMI index showed an improvement in the economic conditions. Thus, forthcoming months may bring some advancement as the sentiment data concerns the future and the industry data relates to the past. Nevertheless, some deterioration in the industry will negatively affect the GDP growth in the first quarter.

In turn, the data on retail sales in the eurozone was better than the German release on industry. The retail sales growth stood at 3 percent on a yearly basis – a sign that the expansion is intact. However, the data from the previous week was revised down to 3.2 percent from the 3.7 percent reported previously – a suggestion that the pace of increase may be slower than previously anticipated.

Greece got financing

The future of Greece remains uncertain. The nation still has not reached an agreement with its international creditors on disbursement of the money from the bailout program. Today, the Greek prime minister Alexis Tsipras met with the Russian president Vladimir Putin – a message for the European politicians that Athens have more options than Brussels. However, the joint statement after the meeting was not significant.

Independently from the political developments, Greece managed to raise 1.14 billion euro from selling the six month treasury bills. The sale was very expensive as the average yield was 2.97 percent – more than one on the Portuguese ten year bonds.

Greece is barred from the financial markets and the nation has to finance government by short term borrowing. The country hit the 15 billion euro cap imposed by the International Monetary Fund and the European Central Bank is not willing to increase Athens’ short term borrowing limit. Nevertheless, the base scenario is Greece will finally reach some form of agreement with international creditors as the country's default will hit all the interested parties.

The EUR/USD moved up

After a weak beginning of the week, the major currency pair posted some rebound as the expectations before the release of the Federal Open Market Committee minutes are pressuring the dollar.

Any remark that the strong dollar has a negative impact on the economic growth will signal that the Federal Reserve may postpone interest rate hikes. As a result, the dollar will continue its correction in the short and long term outlook.

A stronger zloty

The zloty managed to extend yesterday's gains against the euro and frank. The Polish currency exploited the fact that the Fed may postpone monetary policy tightening – a factor that supports the risk assets class.

Moreover, today's data from the Polish economy was quite good – the retail sales rose 8.3 percent according to the Eurostat and the labor ministry said that the unemployment rate dropped to 11.7 percent in March against 13.5 percent in the previous year.

The zloty is in the position to extend gains as the sentiment is in favor for risk assets. The EUR/PLN dropped as low as 4.0068 – the lowest level since July 2011. The probability of a decline below 4 zloty is very high.