Afternoon analysis 24.03.2015

Volatility has returned to the markets. Greek anxiety mounts as country may run out of cash in April. The zloty dropped against the franc.

Today's session has been characterized by the increase in the volatility. The euro – after quite good first part of the session – dropped against the dollar as the US reports surprised by readings above expectations.

Firstly, the inflation report was above projections. The core inflation growth – a measure that excludes volatile prices of food and energy – stood at 0.2 percent – more than 0.1 percent expected. This result shows that the pillar for the prices rebound has been established. Moreover, the general inflation measure growth stood at 0.2 percent – the first positive reading in recent months. Prices has increased mainly due to stabilization of fuel prices after severe drop in oil prices.

A wider look on the US reports suggests that the likelihood for steeper prices growth is increasing. Although the latest data on retail sales showed some weakness in consumption, the reading has been affected by the drop in gasoline prices. The consumption growth is expected to increase as this low gasoline price impact diminishes and the expansion in the labor market is very strong.

The second positive reading from the US was report on new home sales. The number of sold homes increased to 539k – more than forecast and above 500k in the previous month. It was the highest level in seven years. The PMI index for industrial sector was also above expectations, however other readings – the Richmond Manufacturing Index and home prices index – missed expectations.

Greek anxiety

Although the session in not successful for the euro, the data released today suggests that the euro zone economy is getting better. Flash PMI reports for Germany and the monetary union showed improvement in the economy. The European Central Bank quantitative easing program will facilitate the expansion in the long term.

The Greek anxiety pressures the euro. If country does not receive next disbursement from bailout program, it will run out of money on April 20. - according to Reuters citing unofficial sources. Athens – before obtaining money – has to convince international creditors that the reform plan prepared by the county is credible. Yesterday prime minister Alexis Tsipras met with chancellor Angela Merkel, but until now there has been no binding decision.

The weakness of the euro has been exploited by the Swiss frank. The EUR/CHF dropped below 1.05 – the lower unofficial level of 1.05-1.10 bank accepted by the Swiss National Bank.

Zloty dropped against the frank

The beginning of the day was not positive for the zloty, but later the Polish currency managed to gain against the euro and pound. The dollar was stable, but the frank gained against the zloty as the Swiss currency has been fueled by the Greek problems. Nevertheless, the zloty may continue to increase against the euro.