Afternoon analysis 17.08.2015

The dollar more susceptible to the economic reports. Volatility increased in the EUR/USD market as the manufacturing index in the New York region missed the forecast. The zloty exploited the dollar's weakness and some optimistic information regarding Greece.

The Federal Open Market Committee's minutes from the July meeting are to be released on Wednesday. The report will provide more guidelines on the next meeting in September when the central bank may decide to increase interest rates. One can expect quite a dovish stance of the central bank in spite of solid economic environment.

On 17 September the Federal Reserve is to release its rate decision. Thus, there is only a month left to the meeting that may lead to the first interest rate hike in almost a decade. As the term is moving closer, the dollar will be getting more susceptible to the economic releases, especially if reports miss the forecasts.

The New York Empire State index completely missed expectations. The gauge plunged to minus 14.9 points from the plus 3.9 points level in the preceding month. A reading below zero signals a deterioration in the situation. The forecast was for 5 points. The report showed that the business activity slumped to the lowest level since 2009.

After the report was released, the dollar declined. But later the US currency managed to recoup losses. The index constituents were quite poor, but the future business condition index posted a significant gain. Thus, it suggested that the current decline in activity would have been transitory.

Oil plunged

The oil price dropped to the lowest level in almost six years. A recent decline was due to the comment from the OPEC representative who said the supply may increase to 33 million barrels a day after Iran's restrictions are removed. The second factor that pressured the oil price was the information to increase the drilling in the US.

Oil declined 30 percent from its recent peak in June. Given the situation, the commodity countries were put in a very difficult position.

Today the Russian rouble dropped to the lowest level since mid-February against the dollar. The USD/RUB increased as high as 65.7. Russia's economy was hit by the situation in the oil market and the international sanctions imposed over the Ukrainian crisis. In the second quarter, the GDP growth dropped to minus 4.6 percent on a yearly basis - the weakest result since 2009. Today there was information that the Kremlin is going to cut employment in administration given the economic difficulties.

A stronger zloty

On Monday the zloty increased. The Polish currency posted gains against all its major pairs. The EUR/PLN dropped near the 4.16 zloty level. However, the dollar's volatility was quite high - the USD/PLN moved in the 3.74-378 band.

Greece moved closer to the bailout program. After the Eurogroup agreed to provide support, only the approval from the national parliaments is needed. However, the risk of a negative scenario is near zero. Nevertheless, the impact of the Greek agreement will support the zloty only in the short term. In the long term the key factor is the Fed's policy. If the FOMC's minutes point at the tightening in September, the zloty will decline.