Afternoon analysis 11.06.2015

Solid retail sales data strengthened the dollar. Some relief in the market due to positive information regarding Greece. The zloty only increased against the euro as the outlook for the Federal Reserve raising interest rates pressured risk assets.

In May, retail sales in the United States increased more than forecast. It rose 1.2 percent against the 1.1 that was forecast and more than 0.2 percent in the previous month. The data excluding vehicles also exceeded the projection. It rose 1 percent - more than the 0.7 percent that was expected and more than 0.1 percent a month earlier.

The retail sales growth should result in an overall improvement in consumption. The beginning of 2015 has been rather weak. Still, a strong expansion in the labor market pushed the US households to spend money. Data on employment change released last Friday exceeded the forecast. It rose 280k - a better reading than the 220k that was forecast.

Today's data concerning unemployment claims were quite good. The number of newly unemployed people increased by 2k to 279k. A result slightly worse than the forecast. Given the report, the expansion in the labor market looks very strong as the number of claims remained below 300k.

Today's releases were the last important reports before the Federal Reserve meeting next week. Recent reports suggest that the US economy got back on track after some deterioration at the beginning of the year. As a result, the Fed will pursue its plan to raise interest rates. Currently, the market consensus for the first interest rate hikes is the September term.

Limited tensions

Nervousness concerning Greece has been limited. After the talks between the Greek Prime Minister Alexis Tsipras, German Chancellor Angela Merkel and French President Francois Hollande, comments were rather positive and constructive. Athens will work with higher intensity to break the deadlock in negotiations with the country's international creditors.

The Greek government chief met the European Commission President Jean-Claude Juncker. Over the past week Juncker criticized Tsipras in harsh words as he missed deadlines. The European politicians are expecting to see some action from Athens, not only declarations. A similar stance was presented by the European Council President Donald Tusk.

There is not much time left for a debt deal. Greece has to repay the 1.6 billion euro bill to the International Monetary Fund by the end of June. Moreover, the country’s bailout agreement expires by the end of the month. In addition, the country’s banking system is on the brink and the economy is ailing again after quite a good 2014.

The EUR/USD dropped on the strong economic indicators from the US. The market focus was shifted to the US reports as the Fed is going to raise rates. As a result, the EUR/USD might extend losses.

The zloty increased only against the euro

Some improvement around the Greek crisis helped the stock markets. The major stock indexes posted significant gains today. In the case of the currency market, a more important factor is the expectations for the Fed to raise rates. As a result, the EUR/USD has dropped.

Given the situation, the zloty is in an unfavorable position. The Polish currency is considered as an emerging market currency. As a result, the outlook for the Fed raising rates negatively affects the zloty. The domestic political situation is not as important.

The zloty may be strengthened if the Fed statement is rather dovish. However, a similar scenario is not very likely. Thus, the Polish currency will stabilize with a tendency to decline.