Daily analysis 30.03.2015

Another turmoil regarding Greece. Speculators expect a further euro slump. No ground breaking news from Yellen's speech but some facts are worth mentioning. The zloty remains fairly stable to the euro. The MPC member Chojna-Duch is not keen to use monetary policy in fighting against the stronger zloty.

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

• 14.00 CET: German preliminary inflation data for March (survey: +0.3%).

Greece and CFTC data pushing the euro lower

The news agencies have been publishing leaks on Greek reform proposals which are aimed at unlocking 7 billion in aid for Athens. It is currently visible that the austerity program will not win the creditors' approval. The ruling coalition claims that it is scheduled to increase the tax revenue by 3 billion and the Hellenic Republic economy is expected to grow by 1.4% while primary surplus (not including costs to manage the debt) would be +1.5%.

However, from the brief analysis we can see that the project may again be rejected by creditors. Higher revenue is planned to come from increased real estate tax and hiked VAT on islands. Additionally, it is not really certain whether this idea will get enough support from Tsipras government coalition. During the weekend, the Greek economy minister claimed that the only way to deal with the problem is a confrontation with the IMF or eurogroup.

It all sounds quite alarming. But we still have to remember that Greece is under significant financial pressure and at the same time the EU is much more resilient to any financial turmoil then a few years ago. As a result, despite all the fears there is still a higher chance that the deal would be signed so that the events unfold with no control.

CFTC data

Besides the issues regarding Greece, the market is also concerned with the CFTC data. According to the weekly report published on Friday at the end of Tuesday's session the amount of short positions on EUR/USD rose to the highest level in history (220 contracts valued more than 27.5 billion euro). It is quite surprising especially that after the Federal Reserve the EUR/USD rebounded markedly.

EUR/USD and the number of positions on EUR/USD according to CFTC

Source:Bloomberg, own analysis. The chart shows quotings of the EUR/USD for the last 10 years (yellow line, left scale) and the net number of speculative positions on EUR/USD (white line). The minus means that more market participants assume the euro falling than strengthening.

This may mean that speculators have used the opportunity to expand dollar purchases with a slight dollar depreciation and expect a prompt return to a bullish trend on the greenback. Both the Greek issue and CFTC data are the main reasons behind the recent slide on the EUR/USD.

No ground-breaking comments from Yellen

During Friday's Yellen conference in San Francisco the FOMC chairwomen clearly suggested to the market not to focus on the moment of monetary tightening but on its path. The Feds chief also stressed that the hikes would be gradual and depended on the economy. During the cycle, the tightening might be sped up, slowed down, paused or even reversed if the economy warrants such a decision.

Yellen, however, was quite critical to some opinions taken from the primary dealers survey (the largest banks which trade bonds directly with the Fed). The largest financial institutions claim that there is a 20% chance that after initial tightening the Fed fund rate would return to zero by 2017.

Overall, it should be assumed that Yellen is ready to begin the monetary normalization process, but the pace would be quite slow and heavily depended on the macro data. The market would also be certain that in case of any slowdown the Fed is ready to help.

The foreign market in a few sentences

Another set of inconsistent proposals from Greece and record high “short positions” reported by the CFTC are pushing the EUR/USD lower. Still, the fate of correction is not clear and the market would be waiting for the signals from the macro data and comments from Federal Reserve members. If the publications favour a later interest rate increase (weak ISM, NFP below 200k, and lower wage growth) the EUR/USD may rise to around 1.10 at the end of the week.

The zloty remains stable

Both the zloty and the forint remain fairly resistant to turmoil on the EUR/USD. The EUR/PLN stays below 4.10 which may be an indication that the Polish currency could test a two-year high pretty quickly and approach 4.00 to the euro.

There is still no sign of concern from the MPC members regarding the Polish zloty appreciation. On Friday, Elżbieta Chojna-Duch suggested in Reuters that changes in the monetary policy are not appropriate tools to prevent the PLN strength. As a result, we should assume that only a significant PLN increase (around 3.80-3.90 per the euro) should provoke speculations on FX intervention.

Stronger local currency does not translate into the franc which is still worth around 3.90 PLN. It is a result from quite a weak euro to the Swiss currency. It is unlikely that this picture will be changed quickly because the SNB clearly resists more aggressive intervention to weaken the franc.

Anticipated levels of PLN according to the EUR/USD rate

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