Daily analysis 13.07.2015

The agreement between Greece and its creditors intensifies the appetite for risk in the region, but the EUR/USD drops. Friday's appearance of Janet Yellen did not give any unambiguous suggestions regarding the monetary policy. After news from Brussels, the zloty gains to the euro and franc.

Most important macro data (CET – Central European Time). Estimations of macro data are based on Bloomberg's information, unless marked otherwise.

• 15.00: The Eurogroup meeting: ministers of finance of the eurozone countries will discuss the topic of bridge financing of Greece.

First stage of the agreement is over

Negotiations regarding the Greek financing package had a lot of turning points in the last few days. At the end of the week, it seemed that Tsipras' would be successful because the Greeks decided to conduct the reform which was to give them a few dozen billion euros at the end of June, and applied for aid from the ESM worth more than 50 billion euros.

However, the result of the weekend's negotiations puts Athens in a completely different light. In order to begin negotiating access to a substantial part of the aid, Syriza has to convince the parliament to adopt the regulations regarding the changes to VAT, pensions and automatic cuts in expenses, within 72 hours.

When the above regulations will be adopted, Greece will probably receive a few dozen billion euro. This money will be used for, among other things, settling their obligations for the EBC (more than 3 billion on 20 July, and 3 billion on 20 August), and restoring the country's normal activity.

Then the real discussions will begin. They were always considered as “red lines” for Tsipras. The labour market should become more flexible, privatisation would occur, administration costs should be reduced, there would be a decrease in the market boundaries, and changes in the legal system.

Additionally, a special institution supervised by the creditors will be appointed. It will gradually privatize the national wealth, which is estimated to be worth 50 billion euro. Half of this money will be used to pay the running debts, and the other half will be invested in the private sector.

The agreement even includes such matters as the creditors' return to Athens and the restoration of independence of the local statistical offices. Thus, Tsipras agreed on what he originally refused when he became prime minister, which is actually giving authority to the creditors and the sale of national wealth.

An element of risk

The first reform will probably be acclaimed by the parliament without any bigger obstacles. Especially that the situation in the country is dramatic and the changes are also supported by the opposition. There is also a big probability for an agreement on bridge financing by the eurozone countries' parliaments, including Germany.

Bigger problems may appear on the horizon in the following weeks. Most of all, if the government of Tsipras can not deal with more radical members of Syriza or the Greek society, which after all counted on ending the savings policy and not its intensification.

Thus, it is possible that there can be some changes to the peaks of authority in Greece. If the opposition gets the majority, the reform will continue. However, if the government will be made up of the representatives of the extreme left and Tsipras will be put aside, there will barely be a chance to perform the deal. The Grexit would then become the base case scenario.

Activity of the banking system is also an element of risk. A control of capital flow will probably be maintained for a long time and the possibility of cash withdrawal will remain limited. This will happen even if the EBC agrees to increase the emergency financing, or extra capitalization of the financial institutions occurs. This fact will significantly intensify social discontent.

Few words about the currency market

There should not be any bigger complications in adopting the obligations established on the weekend within the forthcoming days. Even if a part of Syriza will not accept the reform, it will be accepted by the opposition, and formal discussions regarding the aid from the ESM will begin. The problems can begin within the following weeks. Especially, if Tsipras loses the support of the society as well as his own party.

Apart from the events from Greece, on Friday Janet Yellen made her appearance. However, the Fed chairwoman was very careful when making specific suggestions regarding the future monetary policy. She only confirmed that the Federal Reserve will begin to normalize the monetary policy this year.

The initial agreement caused only a short-time increase in the EUR/USD. We paid attention to such a development of the situation on Friday. Currently, an increase in appetite for risk can revive “carry trade” finances in the euro, and also cause the Fed to receive less arguments to maintain zero interest rates. Both of these matters are negative for the main currency pair. Thus the EUR/USD should currently go below the limit of 1.10.

The zloty returns to balance

The depreciation of the EUR/PLN and CHF/PLN in the area of respectively 4.15 and 3.95 is a return to evaluation of the national currency from before the Greek commotion. The zloty should again react to the standard signs from the market – a perspective of the monetary policy from the USA and the data from the country and the eurozone.

Thus, Wednesday's appearance of Janet Yellen in front of the Chamber of Representatives and the readings of the national retail sale and industrial production, will be worth observing. If the Fed chairwoman speaks positively about the agreement with Greece, the market can consider it as a hawkish sign. The dollar can then get more expensive by 0.02-0.03 PLN. On the other hand, by better readings from the national economy, the franc as well as the euro should go respectively below 3.95 and 4.15.

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

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