Afternoon analysis 10.07.2015

The markets celebrate the latest Greek plan. France was pleased with the offer, but Germany remains restrained. The zloty erased this week's losses against all its major pairs.

All in all, the scenario that Greece will leave the eurozone is not going to happen. Athens submitted a new reform plan that meets nearly all expectations of the country's creditors (more on the issue in the latest commentary). Currently, the offer is being scrutinized by the creditor's experts.

The Eurogroup Chairman Jeroen Dijsselbloem said, it is highly probable that the decision will be made later today. The French President Francois Hollande assessed the proposal as credible and serious. This was not surprising, as the French experts helped the Greek government with council.

Nevertheless, Germany was more restrained. The Berlin government said it will not comment on the Greek proposal before the offer is examined by the creditor's experts.

Such a statement has not resulted in limited optimism in the markets. The euro exceeded 1.12 dollar from the 1.10 level on Thursday. The common currency increased also against the yen and the pound. The stock markets were also all in the green. In the debt market there was a broad decline in yields.

Greece is expecting more

Investors were not concerned that Greece increased its expectations. Currently, the nation is expecting to get 53.5 billion euros in the three year bailout program. Earlier, the case was for 7 billion euros in the last tranche of the second bailout. In return, the Syriza government does not offer more significant concessions than previously expected. Earlier, there was no proposal of a third bailout program.

As a result, the German restraint can evolve into a defiance against additional financial support for Athens or an expectation for more concessions from Greece. Moreover, the poorer part of the eurozone may also criticize the Greek offer. As a result, the initial optimism may be tempered as still there is no final deal.

Fed time

Regardless of the Greek crisis, the market focus will gradually shift to the Federal Reserve. The US central bank is expected to raise interest rates this year. However, it is not clear, whether there will be one or two interest rate hikes.

The Fed Chair Janet Yellen is scheduled to speak today. But given the type of event, it is not likely she will comment on the monetary policy. However, the issue will be tackled in the next week, when the Fed Chair is scheduled to deliver the semi annual report on the monetary policy to Congress. Yellen's speeches will help to better assess the probability of tightening, which will affect the markets, especially the emerging markets’ currencies.

The zloty recouped losses

The Greek optimism supported the risk taking. As a result, the emerging market currencies posted significant gains.

The zloty managed to erase losses incurred earlier in the week. If the final deal is signed, the Polish currency will remain on a high level in the short term.

However, market attention will move to the Fed. If the likelihood of interest rates hikes increases after Yellen's speeches, the risk assets will be negatively affected. As a result, the zloty may return to declines.