FXStreet (Bali) – Nomura’s base line is for a move towards 1.10 in EUR/USD in the Asian open, but no major follow through is expected unless fear of contagion effects t the periphery arises.
Key Quotes
“We clearly have a negative outcome on our hands. The risk of a bad outcome, involving breakdown in currency convertibility (i.e., the route to Greek exit from the Eurozone) has clearly risen, perhaps to above 50%.”
“We note, however, that even what happens after a YES and a NO is highly uncertain; hence, it is all about probabilities and uncertainty, rather than something truly binary.”
“While the likely direction of risk assets, and peripheral bonds is fairly clear (down). The impact on the euro is less clear cut.”
“We have observed in recent weeks, that the correlation between the euro and Greek news has become unstable. This in itself is important, as many will be reluctant to trade in the open.”
“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. But the important part of the session will only begin when European markets open. 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.”
“Our base line is a move towards of 1.10. But no major follow thRough 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 from there, all will depend on how opinion polls stack up and whether we get the Yes or the No vote next weekend.”
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