Too many scenarios are possibles in Greece this weekend, and it is the way the market is trading. Greece to remain in the Eurozone, Grexit to leave the bloc orderly or the pandemonium where Greece leave the area with a slam and taking another countries with him.
Megan Greene commented on Friday, that maybe the best option is to be at the same situation of early 2012, "It is a sign of how bad things are in Greece that I think the best option at the moment is a return of New Democracy and Pasok to power."
Greek politician Dora Bakoyannis commented that as a ND victory, "New Democracy will ask for 2 years to extend the time for austerity program." and according to Green, "Troika will agree to this."
Global governance is ready to act, or at least they have launched rumours about coordinated intervention ready if needed, but as Christopher Vecchio comments in a elections preview, "Greek elections could spur immense volatility," while he is pointing that "Euro outlook unclear."
Vecchio also states that the "[EUR/USD] clean break above 20-DMA (1.2537) gives scope to rebound near 1.2625/30, then 1.2820. Greek elections crucial."
"A victory of SYRIZA isn't priced in," comment ForexCrunch analyst Yohay Elam. "I believe that EUR/USD will open with a big gap and will trade very choppily, breaking technical barriers. Also EUR/JPY will fall sharply and EUR/GBP and EUR/CAD will fall more moderately. EUR/AUD has a chance of staying relatively stable. A sharp fall is usually followed by a temporary violent correction."
On the other hand, "A victory of New Democracy will boost the euro for a short time," expects Elam. "Another indecisive result in the elections will results in losses for the euro, which will gradually deepen."
"If the Greek election doesn't push Greece one step closer to an exit and anxiety levels and borrowing costs subside," states Ilian Yotov, AllThingForex.com analyst. "The euro might be able to pull of a relief rally ahead of the EU Summit in late June that could target $1.28-$1.30 area."
"There is a lot of cumulative fear in the markets, but the more likely outcome is for another short-term period of stability for the Euro," points John Kicklighter from DailyFX.com. "That said, the ‘buying time’ scenario will probably stir a lot of volatility and curb a solid trend."
"This will be a tumultuous week," concluded Kicklighter.
Meanwhile, Rob Booker, Host of the Trader's Podcast, shows the concern across the market in his twitter: "Please consider not holding trades over the weekend."
FXstreet.com has asked experts around the world to try to study all scenarios and possible market reaction in Monday. Let's see it:
- What do you think will be the results in the Greek elections? How the market will see a hypothetical SYRIZA victory?
- What do you think about Grexit [Greece leaving the euro] possibilities? How could the relationship between Greece and the rest of Europe?
- How do you see the Euro and its crosses pricing on results in the short time?
Ilian Yotov, AllThingsForex
- The election is too close to call at this point but it would probably bring victory to the pro-bailout and pro-austerity New Democracy party as more Greeks begin to fear the unknown impact of an exit from the EMU.
- Simple, I don't think that Greece will leave the euro-zone and the euro.
- If the Greek election doesn't push Greece one step closer to an exit and anxiety levels and borrowing costs subside, the euro might be able to pull of a relief rally ahead of the EU Summit in late June that could target $1.28-$1.30 area.
Yohay Elam, Forex Crunch
- I think that the scenario with the highest probability is that SYRIZA will win and probably with an absolute majority in parliament as they have momentum. The markets will not like it, even if this will not be a huge surprise.
- The chances of a Grexit are high even if the pro-bailout party New Democracy wins the elections. Greece is on the verge of collapse, with an energy crisis, a tax run, a bank run and problems getting medicine to people that need it. Targets for the second bailout aren't met, and the new government will have to pass 77 measures by June 30 (according to Bailout 2). Only a third bailout, that will be dramatically different from the previous two, can prevent a Grexit, but this doesn't seem likely. Greece's relations with Europe will sour, as the damage to the European economies and its banks will anger elites. In the longer run, a Greek success in recovering from the Grexit will probably push other countries to follow.
- A victory of SYRIZA isn't priced in. I believe that EUR/USD will open with a big gap and will trade very choppily, breaking technical barriers. Also EUR/JPY will fall sharply and EUR/GBP and EUR/CAD will fall more moderately. EUR/AUD has a chance of staying relatively stable. A sharp fall is usually followed by a temporary violent correction. A victory of New Democracy will boost the euro for a short time. Another indecisive result in the elections will results in losses for the euro, which will gradually deepen.
John Kicklighter, DailyFX.com
- The second round election carries a greater level of importance than the first, and that is why the markets are so sensitive and media so frantic. Given the concern, the markets are treating the event as if it has a binary outcome: either Syriza wins and Greece will eventually leave the Euro Zone or ND wins and the fiscal agreements with the Troika will continue. The former would likely hit the euro hard while the latter offers relief for a potential rally. That said, this outcome is unlikely to be so black and white. Considering most polls suggest 75-80 percent of Greeks want to keep the Euro, Syriza’s vow to break its previous bailout agreements will likely undermine its support (Leader Tsipras has tried to cover himself by saying the EU wouldn’t hold up funds or force Greece out if he broke said covenants, but that is wishful thinking). Pro-bailout New Democracy will likely lead, but they will probably fail to meet a majority so will have to form a coalition. A coalition this time will likely hold majority as carry this through to a third election would run the country dangerously into funding trouble.
- An exit for Greece from the Euro is not likely on this particular event alone. In the middle of a global downturn in risk trends with an escalation of Euro Zone-specific trouble with Spain and Italy, officials will be particularly accommodative to prevent a severe crisis. That said, even if we clear this particular period without having Greece exit, there is still an issue with years of recession and worsening conditions for creditors. More favorable conditions on previous bailout agreements for Greece would likely be made if an ND-led coalition is found, but that would probably buy more time rather than actually solve the problem. As global trends falter, the weakest link is put at extreme risk.
- There is a lot of cumulative fear in the markets, but the more likely outcome is for another short-term period of stability for the Euro. That said, the ‘buying time’ scenario will probably stir a lot of volatility and curb a solid trend. Given the election results should start to cross the wires before the Asian session open Monday, the market will show an immediate adjustment to a Syriza or ND lead. From there, the debate over coalition will likely present some confusion and heavy debate in speculative circles. Then we will fall into critical events that include commentary from the Euro Zone ministers meeting on Sunday, G20 meeting policy suggestions Monday and Tuesday, and then the Fed rate decision on Monday. This will be a tumultuous week.
Valeria Bednarik, FXstreet.com
- When taking a look at past May 6th elections, none of the 3 biggest parties managed to achieve the 20% of the electorate: New Democracy stood at 18.85%, Syriza at 16.78% and Pasok at 13.18%. With that in mind, and considering latest opiono polls showing that ND and Syriza are running a tight race, I do believe a majority won’t be reached again, and the Greek agony will continue, resulting in more uncertainty among markets and renewed interest on safe havens, particularly gold and yen.
- An hypothetical Syriza victory, should be a bitter pill to swallow for the EU leaders, that have warned that no more bailout money will be handed to Greece, which is expected to run out of cash in weeks, unless it meets its budget and reform pledges. Alexis Tsipras, leader of the party, told Greek TV earlier this week that he is confident however, that bailout will be handled as “if they don't give us the next loan installment, the euro zone will collapse the day after.” Markets will prefer to get rid of the Euro, although dollar buying will be limited on QE3 speculation. Players will likely be watching the crosses such as EUR/AUD.
- I believe possibilities of a Greece exit are quite high at this point. Market has been pricing in Greece exit for long already, but that does not make things less painful, and the impact will be terrible no doubts. I would expect bank runs all over Europe, and a strong Euro slide up to parity against the greenback. The relationship between Greece and the rest of Europe will probably break for a couple of years, until time heals the wounds.
- This is quite hard to predict: the EUR/USD shorts had reached historical highs over the past couple of weeks and recent recovery has been more of short covering and QE 3 fears, than faith in the common currency. If Euro is meant to fall after the result, will likely lose more ground against AUD and JPY than any other currency, so EUR/AUD and EUR/JPY will likely gap strongly down on Sunday opening. Pound is quite weak on news further facilities are on the table in the UK, so weak/weak does not seem a good choice. Will be interesting to see EUR/CHF reaction as the pair has been barely standing above 1.20 peg lately, and the market extremely long there, with millions on stops right below the mark that could be finally triggered and overwhelm SNB buying, generating more chaos across the board.
Jamie Coleman, ForexLive
- Greek markets are rallying strongly on rising hopes that pro-bailout forces will be able to put together a coalition after Sunday's election. While this is the most bullish scenario for the euro in the near-term it is by no means the end of the crisis. Even the pro-bailout forces want to renegotiate the EU/IMF bailout in an effort to revive economic growth. No matter who gets into office, Greece will remain a ward of the EU and IMF for years to come, which will keep social unrest as a high ebb. Each of the other two scenarios are euro negatives.
- Another inconclusive election would be a disaster while a Syriza-led government would likely be less bombastic than electoral rhetoric would suggest, it would still be a euro-negative. With the market heavily short of EUR/USD, the risk is for a win by the pro-bailout forces squeezing the market. But given the tepid response to the Spanish bailout, Mr. Market seems to be very comfortable carrying a big short position. We may need to see a move above 1.2750/1.2800 to really scare the pants off the big boys...
Tristan Cooper, Fidelity
- Although a Syriza win may be more scary for markets and would raise the spectre of a Euro exit, it would hold policy-makers’ feet to the fire and would improve the prospects for an eventual fiscal union.
- Whoever wins, the March Troika program will have to be revisited as it is already off-track. The Greek economy contracted by 6.2% in Q1 and youth unemployment topped 50%. Indeed, European leaders indicated today that they would offer program concessions to an ND-led government. Further comfort was provided by the ECB and other central banks, which have pledged to cushion shocks emanating from Greece with extra liquidity.
David Song, DailyFX
- The Euro held a tight range on Friday amid the growing notion that central banks around the globe will take coordinated action to combat the debt crisis. We may see European policy makers continue to call on the international community for assistance as the Group of 20 Summit comes into focus. Beyond the Greek elections, the conference in Mexico may prop up the single currency as the G20 plans to tackle the heightening risk for contagion, but the meeting may do little to restore investor confidence should the group struggle to meet on common ground.
- Meanwhile, European Central Bank board member Ewald Nowotny continued to voice his support for a zero-interest rate policy (ZIRP) in order to combat the downside risks for the region, but went onto say that it is too early to speculate on a third Long-Term Refinancing Operation (LTRO) according to an interview with a German newspaper. Indeed, it seems as though the Governing Council is leaning towards a rate cut amid the heightening risk for a prolonged recession, but the ECB may have little choice but to implement a range of tools to shore up the ailing economy amid the ongoing turmoil in the financial system.
Camilla Sutton, Scotiabank
- Markets are hesitantly biased to add to risk positions into the NA open as the overwhelming belief that even a worse case scenario in the Greek election will be met with coordinated central bank action takes hold. In addition, a drop in US inflation has opened the door wider to a notably dovish Fed next week, which is limiting traders’ desire to add to already record long USD positions. The market feels risky, but volatility measures are dropping lower, suggesting that traders are not pricing it as risky as tail risk is declining on the back of potential central bank policy. Risks loom large, but the markets are giving early signs that they are moving towards a temporary risk rally.