In a note to clients today, Nomura discusses the potential EUR/USD reaction from the Greek news over the weekend.
Starting with a wrap-up of what happened so far:
"A referendum will take place on July 5, in which the Greek people are asked whether they accept the draft agreement presented by the EC, ECB and the IMF on June 25. The government will campaign for a no. The Eurogroup has decided not to prolong the 2nd bailout program after June 30. The ECB has announced that the ELA ceiling will be capped just below EUR89bn. Greek banks will remain closed on Monday."
Implications On EUR/USD trading:
"On net, we think the knee-jerk reaction to the Greek news will be for EURUSD to trade down in the Asia open. But our conviction in this view is lower than for the direction of Eurozone risk assets. We closed at 1.1160 on Friday, and we could test 1.10 in early hours of trading. The important part of the session will only begin when European markets open, however. The key here will be if contagion effects to peripheral markets are significant (leading to a break in bond spreads observed this year), and if equity market weakness generates sufficient hedge adjustment to push EURUSD higher," Nomura argues.
"Our base line is an initial move towards of 1.10. But no major follow though from there, and perhaps a reversal if contagion effects turn out to be manageable without ECB intervention beyond the soft verbal intervention we already received on Sunday. And beyond that, all will depend on how opinion polls stack up and whether we get the Yes or the No vote next weekend," Nomura projects.
Starting with a wrap-up of what happened so far:
"A referendum will take place on July 5, in which the Greek people are asked whether they accept the draft agreement presented by the EC, ECB and the IMF on June 25. The government will campaign for a no. The Eurogroup has decided not to prolong the 2nd bailout program after June 30. The ECB has announced that the ELA ceiling will be capped just below EUR89bn. Greek banks will remain closed on Monday."
Implications On EUR/USD trading:
"On net, we think the knee-jerk reaction to the Greek news will be for EURUSD to trade down in the Asia open. But our conviction in this view is lower than for the direction of Eurozone risk assets. We closed at 1.1160 on Friday, and we could test 1.10 in early hours of trading. The important part of the session will only begin when European markets open, however. The key here will be if contagion effects to peripheral markets are significant (leading to a break in bond spreads observed this year), and if equity market weakness generates sufficient hedge adjustment to push EURUSD higher," Nomura argues.
"Our base line is an initial move towards of 1.10. But no major follow though from there, and perhaps a reversal if contagion effects turn out to be manageable without ECB intervention beyond the soft verbal intervention we already received on Sunday. And beyond that, all will depend on how opinion polls stack up and whether we get the Yes or the No vote next weekend," Nomura projects.
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