Greek elections: Uncertainty increases, ECB on hold

Forex News and Events

Greece: New elections approach (by Yann Quelenn)

On September 20, Greek legislative elections will be held in Greece. Prime Minister Alexis Tsipras has announced his resignation on August 10. Initially, elections were not due until February 2019. Syriza which was, according to polls, certain of the victory, could now face a victory of New Democracy, another political party. In our opinion, we consider that Alexis Tsipras has failed in his mandate. There is now a clear signal that no country willing to stay inside of the euro can decently negotiate with the ECB.

The debt-to-GDP ratio for Greece has exploded and is over 180%. On the other side, Germany seems the only country that is still able to control its debt. On a medium-term basis, we remain bearish on the EUR-complex as we think that Quantitative Easing will only create a fake sentiment of money flooding in the market which will bring equities up, at least for a while. The impossibility for any country to debase its currency is in our opinion the major issue. The pace of the Eurozone economy is set by the strongest economy, Germany. For the other European countries, the only way to follow this pace is to increase austerity policies.

ECB to stay on hold (by Peter Rosenstreich)

Today’s ECB rate decision should of limited relevance for FX traders (in the context of China volatility and NFP). It’s universally expected that policy will remain unchanged. ECB staff macroeconomic projections are anticipated to get downgraded with headline HICP inflation y/y lower to 1.0% from 1.5%. Markets primary focus will be on any indication that QE will be held past September 2016. Lowering inflation projections would be a clear dovish act, inspire plenty of QE forever conversations. However, President Draghi is unlikely to provide real clarity towards QE extension. There certainly will be questions on the filter-through effect of a stronger EUR, yet again we don’t expect any firm disclosures. As for the EUR it remains a funding currency within the G10 and therefore subject to fluctuating risk appetite. Further dovish tone from today’s ECB meeting will only encourage euro sellers. For the EURUSD we remain bearish focused on the 1.1210 support line ahead of 1.0900 uptrend channel floor.

USDCAD - Targeting Year-High