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Daily analysis 07.07.2015.

7 Jul 2015 13:37|Marcin Lipka

Greeks and the creditors are returning to talks but a breakthrough in negotiations should not be expected today. The currencies dependent on the oil export are visibly losing value. The zloty is also losing its value comparing to the majority of currencies because of the tensions connected to Greece.

Macro data (CET- Central European Time). Survey is supplied by Bloomberg unless otherwise noted.

  • Throughout the whole day the reports on Greece
  • 16.00: Service ISM from the USA (survey: 56.4 points).
  • Throughout the whole day the speculation on Greece: the possibility of returning to talks, the reaction of ECB (European Central Bank) to the lack of paying back the installment for the IMF, studies about the support.

Calendar filled with meetings

After almost two weeks of breaks caused by the announcement of the referendum declared by the Prime Minister Tsipras, both sides return to the talks. In spite of the Eurogroup meetings with the leaders of the eurozone countries being planned for today, we should not expect a breakthrough.

This is because of the fact, that over the last several days the situation has complicated a lot. Greece did not complete the second aid program which expired on 30th June. This is why Athens did not receive 7.2 billion euro. Moreover, the Hellenic Republic did not pay the loan installment to the IMF. For this reason the head of the International Monetary Fund will not take part in today's meetings.

The situation in Greece is not even better. The exchange of the finance minster is a minor detail comparing to the fact, that the banks have already been closed for about one and a half weeks. It also seems that the situation in the country is not far from radicalization. The explosion of joy that was observed on Sunday night when it appeared that the majority of the society is against the reforms offered by the creditors, may easily turn in to an explosion of anger and riots.

The situation is exacerbated by the information and rumours concerning the situation of the Greek economy and the approach of the participants of talks. The leading rating agency Standard & Poor's wrote today that there is more than 50% chance that the Hellenic Republic will leave the area of the common currency and may announce bankruptcy this week. The Ekathimerini newspaper wrote, referring to the sources in Brussels, that 16 out of 18 countries of the eurozone are for removing Greece from the common currency area.

The reconciliation of both sides and the announcement of further talks in the coming days would be an optimal outcome. That would increase the chance for an agreement and it would slightly support the common currency. On the other hand, if today’s talks are fruitless, the tensions in Greece would be much more intense. Moreover, the radical voices of the creditors would cause the fact that the Hellenic Republic would be on the final straight to leave the eurozone.

Pressure on commodity currencies

Over the last three days the oil price fell about 10%. There are a few reasons for this. First of all, there was the increase in oil reserves last week, in spite of the summer season, during which the US warehouses are usually emptied. Secondly, we are approaching the agreement between global powers and Iran. It is possible, that today we will find out that Teheran will be able to sell the reserves of 30-40 million oil barrels and increase the export by 500 thousand barrels a day.

The high production by OPEC (Organization of the Petroleum Exporting Countries) negatively influences oil valuation. The cartel begins to exceed the limit of 30 million oil barrels a day. According to Bloomberg the mining in June was about 32.1 million barrels a day which is the highest level since August 2012.

It is also possible that the direct catalyst of losses were not caused by supply but demand issues. The confusion connected with Greece may cause the economic slowdown in Europe. This may result in the lower consumption on the old continent. That will be connected with a higher valuation of the American currency with which the commodities are usually correlated inversely.

The situation in the oil market has a negative impact on the currencies of export dependent countries. The Norwegian krone, the Canadian dollar and the ruble are losing on this situation. The Russian currency is the one, which is worth looking at. The ruble weakened comparing to the dollar by 15% since mid-May, when the high valuation of Brent, freezing the conflict in Ukraine and market issues, caused the fact that the Russian currency began to be weakened by the central bank.

Foreign exchange market in a few sentences

Investors are going to observe the events related to Greece. Optimistic reports after today's meetings between the Hellenic Republic and the creditors may cause a slight rebound of EUR/USD. In a few weeks time the main currency pair should be under the pressure of the sellers despite the situation in Greece. The situation can only develop by the significant changes of the USA data, but this does not seem to happen.

Zloty under pressure

The continuing weakness of the zloty is still the result of the events in Greece. A similar situation is observed also in the Hungarian forint. At the moment, there are no major opportunities for withdrawal of the Greek currency from the influence of the Hellenic Republic. Foreign investors avoid Polish bonds because of the tensions on the debt market and the possible increases in the profitability of domestic debt. This results in a PLN depreciation.

However, there is going to be an MPC meeting tomorrow. Changes should not be expected in the monetary policy. The council could be asked about the events in Greece and its hypothetical impact on the national economy. It is possible that there will be questions concerning the new economic plans, submitted by the opposition. It is possible that Adam Glapiński will be the new chairman as he is indicated by the media. This may give the market some hints concerning the more or less probable proposals.

Anticipated levels of PLN according to the EUR/USD rate:

Range EUR/USD 1.0950-1.1050 1.0850-1.0950 1.1050-1.1150
Range EUR/PLN 4.1700-4.2100 4.1700-4.2100 4.1700-4.2100
Range USD/PLN 3.7900-3.8300 3.8300-3.8700 3.7500-3.7900
Range CHF/PLN 4.0200-4.0600 4.0200-4.0600 4.0200-4.0600

Anticipated GBP/PLN levels according to the GBP/USD rate:

Range GBP/USD 1.5450-1.5550 1.5350-1.5450 1.5550-1.5650
Range GBP/PLN 5.9000-5.9400 5.8600-5.9000 5.9400-5.9800

7 Jul 2015 13:37|Marcin Lipka

This commentary is not a recommendation within the meaning of Regulation of the Minister of Finance of 19 October 2005. It has been prepared for information purposes only and should not serve as a basis for making any investment decisions. Neither the author nor the publisher can be held liable for investment decisions made on the basis of information contained in this commentary. Copying or duplicating this report without acknowledgement of the source is prohibited.

See also:

7 Jul 2015 9:09

Afternoon analysis 06.07.2015

6 Jul 2015 13:31

Daily analysis 06.07.2015

3 Jul 2015 17:16

Afternoon analysis 03.07.2015

3 Jul 2015 13:09

Daily analysis 03.07.2015

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