Afternoon analysis 23.06.2015

The euro dropped in spite of the resolution of the Greek standoff getting closer and quite good PMI readings. The dollar increased as the Fed was on track to raise interest rates, according to Jerome Powell from the central bank. The zloty dropped against the dollar and other major currencies.

An emergency summit of the European Union helped to ease anxiety over Greece. The likelihood for a final agreement on the reform plan increased as Athens made a new proposal (more on the issue in our morning commentary). As a result, the probability of a negative scenario that Greece would go bankrupt and leave the eurozone was significantly limited.

Still, not every comment was positive. The German Chancellor Angela Merkel was more restrained. She warned that there's still a lot of work to be done. Moreover, the German Finance Minister Wolfgang Schaeuble also said that a final agreement is still far off.

Nevertheless, given the outcome of Monday’s summit, it is not very likely that Greece will collapse. The European Central Bank President Mario Draghi promised the Greek Prime Minister Alexis Tsipras to keep the Greek banks afloat as long as the nation is in the bailout program. The information was given by the Reuters agency citing unofficial sources.

In addition, the European lawmakers are going to support the Greek's economy recovery. The European Commission President Jean-Claude Juncker proposed 35 billion euro for growth. According to Syriza an investment program would balance the impact of a reform plan that will hurt the economy.

However, in the coming days we will probably see a final agreement on Greece. The Eurogroup meeting was scheduled for Wednesday to assess the latest Greek plan. And on Thursday the EU summit will take the final steps.

Stronger dollar

The euro dropped in spite of progress on Greece. Even quite good PMI reports did not support the common currency. Today's reading showed that the economic situation improved even in France. Still, the EUR/USD dropped to the lowest level in two weeks against the dollar.

On the other hand, the dollar was supported by comments from the Federal Reserve's Jerome Powell. The policymaker said that he expects two interest rate hikes this year. The first will probably take place in September, and the second in December. However, the decision will be based on economic development, and currently there is some weakness in the economy.

Data on durable goods orders were weaker than the forecast. The report excluding transportation equipment showed an increase of 0.5 percent in May. However, the overall report revealed a drop of 1.8 percent - a weaker result than the minus 0.6 percent that was expected.

Weak zloty

Moving closer to a deal on Greece supported the sentiment in the stock market. The major markets in Europe and the US posted significant gains. Moreover, an improvement in risk appetite was proven by a drop in the bond yields of debt-stricken countries.

However, the zloty dropped despite a better sentiment. The Polish currency was pressured by the US reports, which suggest that the Fed's tightening is getting closer. This factor was coupled with the comments of the Fed member Jerome Powell that there would be two interest rate hikes this year. Other emerging markets currencies moved in a similar way.

If the Greek crisis is closed, the zloty would post a brief increase. However, the market focus is shifting to the US. And the Fed's policy tightening will limit the zloty's appreciation potential.