Euro Faces Volatile Open With Aid Deal on Greece Still Wanting

The euro faces a volatile start to trading in Asia after Greece was told it must pass legislation on austerity measures through parliament before detailed negotiations with creditors on financial aid can begin.

The shared currency was quoted at $1.10805 via EBS pricing as of 2:51 p.m. New York time, compared with a closing price of $1.1162 July 10. Foreign-exchange markets are scheduled to open officially at 5 a.m. in Sydney. That’s the first market reaction to developments in Europe, where finance ministers meeting in Brussels demanded Greece enact the reforms or face a suspension from the bloc. The European Union previously set a Sunday deadline to reach a deal with Greece on a rescue.

The ebb and flow of Greek bailout talks has already shaken the resilience of the common currency. While it added 3.9 percent in the second quarter, it fell for two weeks through July 3. Renewed hope that a deal could be reached enabled it to eke out a 0.4 percent gain last week. It jumped 2.3 percent that day to 136.92 yen.

“Even though Sunday turns out to be not quite the last deadline, the stakes are rising,” said Steven Englander, global head of Group-of-10 currency strategy at New York-based Citigroup Inc. He estimated the euro would drop between 1 percent and 1.5 percent versus the yen at the market open.

While Greece accounts for less than 2 percent of the euro zone’s output, its exit would risk setting a precedent for other nations that would call into question the integrity of the currency union. Prime Minister Alexis Tsipras was given three days to push new austerity measures through parliament.

‘Moving Parts’

“It is likely that we will know within a couple of days whether Greece is in or out,” Englander said. There are “lots of moving parts.”

Angst over the Greek negotiations helped drive three-month implied volatility, a gauge of anticipated price swings, in the euro-dollar exchange rate to the highest since 2012 on June 29. It fell by the most since February on Friday as investors speculated a deal would be done, underscoring how trading and weekend news has been dominated by Greek twists and turns.

“It’s basically a re-run of what we’ve seen in the last weeks, but I am of the view that they are getting closer to an agreement,” said Peter Kinsella, a senior currency strategist at Commerzbank AG in London. “The downside for the euro seems limited in the short term.”