Afternoon analysis 18.05.2015

The euro pressured by the uncertainty concerning Greece. The deterioration of sentiment towards risk assets affected the zloty. The Polish currency is waiting for key reports from the economy.

The euro dropped from the highest level since early February due to the uncertainty concerning the future of Greece. Recently there has been no significant progress in the talks on the reform plan. Last Thursday the Greek prime minister Alexis Tsipras excluded any concessions regarding the labor market and pension system reforms. As Athens stiffened the stance the specter of country leaving the euro zone and go bankrupt has returned.

Currently, the chief of Greek government is aiming at convincing the European politicians to its view during the next summit in Riga on 21 May. Alexis Tsipras is willing to ask lawmakers for support in negotiations with its international government ­ especially with the International Monetary Fund.

The IMF is viewed by the Greek politicians as the major obstacle in talks. In the meantime, the speculations are mounting that last week payment to the IMF severely weakened the Greek finances. As a result, the country will be able to stay afloat only until the beginning of June.

ECB pressure

The Greek banking sector has been supported with 80 billion euros from the European Central Bank with the emergency liquidity assistance. In the current setup, creditors are allowed to increase this limit to 95 billions euro. However, if the Frankfurt­based institution decides to increase haircut on the Greek collateral, the ELA will be limited to 88 billion euros. The information was given by the Bloomberg agency citing the unofficial sources.

The decision is tided with the developments in the negotiation process. Nevertheless, the ECB will not act in a way that may lead to Greece going bankrupt and leaving the euro zone as a result, if the European politicians are satisfied with the talks.

Currently, the Greek financial system is under heavy pressure. The next crucial date for Greece is 5 June when the IMP payment is due. Two days earlier the ECB decides on rates. Thus, the time for assembling the money for payment is limited.

As a result, the prime minister Alexis Tsipras has been put in a difficult position. The main scenario for Greece is that the nation will finally reach an agreement with the Eurogroup. However, the process is much longer than it was expected.

Weak zloty

The risk aversion prevailing in the broad market is stemming from the unpredictability of the future of Greece, which pushed the EUR/USD from the highest level in more than three months. This factor has negatively affected the zloty.

However, the risk assets was not supported by the comments from Charles Evans. The Chicago Federal Reserve president said that it will be appropriate to keep zero rate policy through next yeas as the inflation growth is pressured. The statement was not able to support the appetite for risk assets and the dollar increased against its major pairs.

In next days important data concerning the Polish economy will be released. On Tuesday, the reading on the labor market is scheduled and the reports on industrial production and retail sales is scheduled on Wednesday. Given the very good report concerning the GDP growth in Poland ­ the economy grew 3.5 percent in the first quarter of 2015 form the previous year ­ next releases should confirm a solid shape of the economy.

The current market situation – some risk aversion and strong dollar – the zloty dropped against its all major pairs. However, if the risk factors are removed ­ especially stemming from the Greek standoff ­ the zloty will return do appreciation.