FXStreet (Bali) – Richard Franulovich and Rob Rennie, FX Strategists at Westpac, share their views on the fluid Greek situation, noting that the Euro looks set for a very volatile start to the week.
Key Quotes
“Euro looks set for a very volatile start to the week, the third time in as many weeks. Losses for the unit seem likely in early Asian dealings as it unwinds the “Greek deal premium” that appears to have been prematurely priced in late last week.”
“Weekend negotiations have not produced a conclusive outcome for Greece. If anything the framework creditors’ are insisting on for a fresh round of financing seem set to push Greece back towards the brink and raise Grexit risk in coming days.”
“With goodwill and trust now in very short supply Euro Area Finance Ministers over the weekend requested that Greece implement a package of sweeping legislative reforms in a host of areas such as taxation and pensions by 15 July – mid this week – as a precondition before negotiations can begin for a third bailout.”
“An earlier set of “Comments on the latest Greek proposals” suggested that in case no agreement could be reached Greece “should be offered swift negotiations on a time-out from the Eurozone, with possible debt restructuring”.
“This would be the first time in the six years since the peripheral sovereign crisis erupted that Euro area exit has been formally tabled as a real option. While the ‘time-out” suggestion was to be ‘offered’ rather than ‘forced’, such a move would be highly contentious and open to legal challenge.”
“The earlier version of the so called time-out solution also suggested such a move should be accompanied by “streamlining all pillars of the European Monetary Union and concrete measures to strengthen the Governance of the Eurozone”.”
In the final version of the Eurogroup’s response, the time out option remains “in case no agreement could be reached, Greece should be offered swift negotiations on a time-out from the euro area, with possible debt restructuring”.
“These heavy handed tactics are unlikely to go down well at all in Greece and risks a rebellion within Syriza should PM Tsipras try to push measures through Parliament.”
“We view this as a last ditch “take it or leave it” deal that is likely to bring some finality to Grexit risk, at the cost of increased volatility and risk aversion in coming days.”
(Market News Provided by FXstreet)