Greferendum:
“OXI!”
Greece has spoken and firmly rejected the austerity package offered by its European creditors.
As we spoke about in this morning’s Asian Session Morning blog, it is important to make it clear that by voting ‘no’, Greece has not yet signaled its exit from the euro.
From the perspective of Prime Minister Tsipras and his Greek Government, this has only strengthened the nation’s ability to take a hard line when it comes to negotiating a less imposing austerity package in return for bailout funds to keep the country’s banking system ticking over.
However, judging by last week’s rhetoric, the Troika has seemingly lost patience with Greece’s inability to compromise. The referendum result really changes nothing on the side of the creditors other than contagion fears associated with a body of people fighting back.
The ECB (for now) will keep the emergency liquidity assistance (ELA) at its current levels, which will mean capital controls will remain in place and Greek banks will stay closed for the foreseeable future. This is news that the Greek people will not welcome, but restrictions have to stay in place to avoid an attempted full scale bank run across a network of empty ATM machines.
Scenarios:
So where to now? We take a look at the various scenarios below.
Deal struck on a revised austerity package: With both parties wanting a deal, this is still the most likely outcome. What sort of revisions and whether the Tsipras government will survive to do the negotiating, we don’t yet know.
This will likely be euro positive, as hopefully this would involve a clear roadmap that both parties are committed to following.
Grexit. A Greek exit from the Eurozone: The fact that the ‘no’ vote won in such convincing fashion pushes the likelihood of a Grexit to new heights.
Even though we said before that the ‘no’ vote wasn’t a rejection of the euro, it does push Greece further down the lonely path. If their European creditors decide that contagion can be controlled and a deal can’t be struck, Greece will have little choice but to issue IOU’s and a parallel currency as the transfer takes place.
The uncertainty around an unprecedented exit will weigh heavily on the euro in the short term, as the market digests what happens next.
Trading EUR/USD:
With a messy chart full of gaps to contend with, we take a look at EUR/USD from a technical point of view.
EUR/USD Daily:
Click on chart to see a larger view.
The daily chart sees a rejection off a confluence of resistance at the marked major bearish trend line. After consolidating into a short term flag, price has today gapped down through this last level of support and will be looking for any uncertainty to push for new lows.
EUR/USD Hourly:
Click on chart to see a larger view.
I am very cautious of treating this as a breakout lower because as you can see on the hourly chart, we did the exact same thing on last Monday’s rumour driven open where we similarly gapped down through support, only to immediately rally hard up into the gap.