Afternoon analysis 20.05.2015

Stable euro before the European Union summit in Riga. The dollar is waiting for hints from the Federal Open Market Committee. The zloty dropped as the reports on industrial production and retail sales missed the forecast.

The euro tried to recoup some losses from the previous two days. However, in the face of uncertainty concerning the future of Greece and the connotation in the Federal Open Market Committee minutes the move has been limited.

At the Riga summit starting on Thursday the European lawmakers will discuss the Greek stand-off. At first, the issue was not scheduled, but Greece Prime Minister Alexis Tsipras managed to convince its counterparts to tackle the issue.

The Greek paper 'Ta Nea' informed that the Greek Prime Minister will present a debt restructuring plan at the Riga summit. Still, the information has not influenced the markets.

German Chancellor Angela Merkel and French President Francois Hollande urged Greece to broker a deal with country's international creditors until the end of month. Earlier, the comments form the Greek government has suggested that the end of May is very likely.

Bloomberg published a report on Greek finance that said Athens may stay afloat as long as eight weeks. The condition is however, that the European Central Bank will not alter the terms under the emergency liquidity is allowed. The ECB will rather not decide to a similar move, as both sides inform that the negotiation process is moving forward.

The dollar is waiting for hints from the Federal Open Market Committee.

The Federal Open Market Committee minutes will be released today. The release may shed some light on the Fed's plan concerning the tightening of the monetary policy.

The recent reports from the US revealed some deterioration in the economic landscape. As a result, the FOMC stance may be rather dovish. Given the situation, the likelihood the Fed will rise rates in June is very low. Thus, if the minutes suggest that interest rate hikes will be deferred, the dollar may be weakened against the euro and other major pairs.

Weak zloty

The zloty dropped after poor data from the economy. The Polish currency performed poorly compared to the currencies from the region. The Czech koruna, the Hungarian forint and the Russian rouble all performed better against the dollar and the euro.

The Central Statistical Office said that industrial production growth in April stood at 2.3 percent against the previous year. A result below the forecast that was saying about 5.5 percent increase, according to Bloomberg. The retail sales numbers were ever worse. It dropped 1.5 percent on a yearly basis. The forecast was plus 1 percent.

Today's reports were quite surprising, what may suggest that the economy may show some weakness after very successful first quarter of the year. Especially the data on retail sales are disturbing, because a strong expansion in the labor market (employment rose 1.1 percent and wages were up 3.7 percent) has not resulted in a larger consumption.

The developments in the zloty market showed that investors are not satisfied with today's releases. The situation has weakened the appreciation potential of the zloty. If the broad market sentiment is not supportive for the risk assets, the zloty will tend to stabilize with little tendency to increase.