Grexit less likely than conventional wisdom suggests – TDS

FXStreet (Bali) – The Strategy Team at TDS looks at the implications of the ‘No’ vote in Greece, noting that a Grexit is less likely than the conventional wisdom suggests, although adding that medium-term arguments for EUR to trade heavy have been reinforced.

Key Quotes

“Greek voters have overwhelmingly rejected the creditors proposal of last weekend, with around 60% voting No.”

“A No vote is not an automatic Grexit, but there are now unforecastable political hurdles that must be made to avoid a worst case scenario.”

“We think a Grexit is less likely than the conventional wisdom that suggests. It is now inevitable that there is likely to be one last political push for a deal. Already a Euro Leaders Summit has been announced for Tuesday. We see Grexit as a 45% chance now, with the political decisions by Tuesday to determine if that stays or rises to as high as 75%.”

“Greek bank liquidity is now the binding constraint. Focus on the 20 July bond payment to the ECB is a distant future. Not only can Greek banks not open on Tuesday as planned, ATMs will likely run out of cash after Monday. ECB sources suggest the ECB will keep the ELA unchanged on Monday, denying a request for an increase. If a political will and way to move forward is found by Tuesday, however, the ECB could drip feed liquidity to get Greek banks to next weekend.”

“The major political issue is optics. European leaders do not want to be seen as capitulating, for fear of creating moral hazard. As such, we think they could use the referendum to argue a broader program, but one that would require the current administration agreeing to a national unity government. And if that fails, we think there is still a one-in-four chance that the Greek government falls apart.”

“However, beyond the politics, we also think that if Greece does not agree to European leader’s proposals, those leaders are willing to allow a Grexit.”

“Overall, we think medium-term arguments for EUR to trade heavy have been reinforced, but overall, Grexit adds to uncertainty and volatility, and still does not provide a significant direction to market trends themselves.”

The Strategy Team at TDS looks at the implications of the ‘No’ vote in Greece, noting that a Grexit is less likely than the conventional wisdom suggests, although adding that medium-term arguments for EUR to trade heavy have been reinforced.

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