Daily analysis 23.06.2015

A deal with Greece is on the horizon. A surprisingly solid PMI from the euro area. Why is the EUR/USD lower despite the overall sentiment improvement? The zloty remains stable, but a 2-3 zloty cent appreciation to the euro is still a base case scenario.

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

• 14.30: Durable goods orders for May in the US (survey: minus 1.0% m/m; excluding transportation +0.5% m/m)
• 15.45: Manufacturing PMI from the US (survey: 54.1 points)
• 16.00: New home sales from the US (523k; +1.2% m/m)
• Tomorrow at 10.00: Ifo index from Germany

48 hours for an agreement

On Wednesday evening the eurozone finance ministers are scheduled to decide whether the reform plan presented by the Greek administration is valid. However, the plan which was available on “The Guardian” website looks surprisingly solid.

Athens would like to increase the tax burden for pensioners despite the fact that they have called it the “red line”. Additionally, the CIT is going to be increased and defence spending is supposed to be cut. Yesterday, Valdis Dombrovskis, the EU Commission deputy chief told Bloomberg that the primary budget surplus is in line with creditors demands.

The base case scenario is set to be completed in a matter of a week. When the Greek plan is accepted by the eurogroup on Wednesday and by the EU by the end of the week, there is supposed to be voting in the Greek parliament. The odds for approving it are pretty high due to the fact that it is going to be supported by the opposition.

Solid PMIs

Despite the issues regarding Greece the market received outstanding PMI readings from the euro area. French manufacturing returned to a growth and the services indexes are at a 4-year high. Moreover, if we exclude Germany and France the composite index rose to an 8-year high.

Commenting on the publication, the chief Markit economist wrote that the GDP in Q2 is expected to rise at a 0.4% q/q pace for the eurozone. Additionally, Chris Williamson claims that current PMI readings are showing that the region may grow by 2% this year if the Greek issues are settled.

The GDP growth in the eurozone around 2.0% this year may have consequences for the ECB's monetary policy. It is possible that some opinions calling for longer QE in Europe might be less heard. Moreover, it is really surprising that the US might be growing (according to the most recent Fed projections at 1.9% in 2015) at a slower pace than the eurozone. This fact, in the longer term, should decrease the rate differential on future interest rates and stop favouring the dollar.

The foreign market in a few sentences.

The behaviour of the euro in the recent weeks and also during last nights favours the view that the euro may be the new “safe haven”. It is possible that it may be regarded as the “new yen”. A low interest rate perspective in the eurozone pushes some investors to use the euro as a funding currency for carry trade. However, when the volatility rises the “carry” is pushed to close what causes the funding currency to strengthen.

However, taking into account that such trends generate for months and the fact that the ECB was rather well-known, since the crisis, as a fairly hawkish central bank it may take many weeks for the market to get engaged with such an approach. The recent changes, however, should give some hints that the issue can be played.

The PLN is not convinced about the deal

The Polish currency is still fairly sceptical concerning the improvement in Greece. The EUR/PLN dropped below 4.16 but the move was temporary. It is also interesting that the forint has reacted much more positively to the expected deal regarding Greece. The Hungarian currency gained more than one percent to the euro in two days.

The base case scenario for the PLN is still some appreciation, around 2-3 zloty cent, when the issue of Greece is dropped from financial press headlines. Additionally, the PMI readings from the eurozone should have been regarded as zloty positive. They should also improve the condition of the national data in the following months. In the mid-term it is an optimistic sign for the PLN.

Today, the moves are expected to be quite limited and the EUR/PLN is expected to remain around 4.16-4.18 and the franc should be worth slightly less than 4.00.

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

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