Where is the euro headed after markets have digested the big NO in the Greferendum and the resignation of Varoufakis?
The team at Deutsche Bank analyzes:
Here is their view, courtesy of eFXnews:
For the second weekend in a row, EUR and risk appetite resilience in the face of Greece has been surprising. So what is this telling us? Here are some key takes as provided by Deutsche Bank along with its latest EUR/USD forecasts.
1- “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,” DB notes.
2- “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,” DB argues.
3- “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.
4- “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,”DB advises.
DB maintains its EUR/USD parity call for the end of the year.
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