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"Opinion is divided between the following two trains of thought: i) that the market is still optimistic that a negotiated settlement can be reached and Grexit averted. Or, ii) Grexit is no longer seen as particularly disruptive for global markets, at least in the short-term. Importantly i) and ii) are deeply inter-connected."
- "The most important aspect of the latest risk resilience is that it has dramatically weakened Greece’s negotiating power. Market resilience adds to the prospects of either Grexit, or Greece agreeing to terms that are not that different from what was on offer prior to the referendum, which may not be credible as a long-term solution."
- "So where does this leave the EUR? The worst case scenario, we have been staring at, notably Grexit, has not hurt the EUR much for now, while the best case scenarios (a negotiated settlement) are not a great reason to buy the EUR either, not least because it will be tough to reach a deal that has long-term credibility," DB adds.
- "One implication is that there is definitely a case to be made to sell short-dated (1m or 2m) realized EUR/USD volatility, especially versus implied vols that will remain pumped up by uncertainty. We still like EUR/USD digital risk reversal trades, where selling 3m 1.14 strikes can finance a 3m 1.08 put at close to zero cost, and the timeline potentially covers a Grexit, or a September Fed tightening."
Forum on trading, automated trading systems and testing trading strategies
Sergey Golubev, 2015.07.10 14:26
Morgan Stanley evaluated some long-term/short term scenarios concerning EUR in case of Greece (based on efxnews article)
Short-term evaluation:
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"Should Greece sign a deal, a short-term EUR rebound
should be followed by EUR weakness as investors are likely to move back
into EUR-funded carry positions."
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"Should Greece exit, the ECB may have to use its tool
kit to keep sovereign spreads under control. Monetary easing should put
the EUR under selling pressure. Ultimately, the ECB should be successful
in controlling spreads, we believe."
Long-term evaluation:
- "A Grexit represents a fundamental shift for EMU with the loss of ‘irrevocability’ potentially turning the union into a club of fixed exchanges rates with the possibility to leave. Peripheral assets will have to trade at a risk premium, unless EMU authorities deepen integration via further banking union and fiscal integration steps. The ECB controlling sovereign spreads successfully could turn into a long-term EUR negative factor as it may not provide the necessary ‘wake-up call’ to European politicians to make the necessary reforms to avoid future market tension."
