As the Greferendum begins to turn into a referendum on Greece’s membership in the euro-zone, the stakes are high also for the value of the euro.
The team at TD Securities analyzes:
Here is their view, courtesy of eFXnews:
TD’s base-case is that the Greek referendum is likely to result in Greeks accepting the proposal by European creditors, and in terms of contagion risks, TD argues that this is far from 2012.
“In the near-term, the euro area will likely survive any potential outcome from the current crisis in Greece. Exposures of European Banks to the Greek banking system have been significantly reduced. A large majority of Greek public debt is owned by official European creditors. The ECB has the ammo to quell rising volatility. Should peripheral bond spreads widen materially, the ECB’s current QE program could be front-loaded into July and August. Furthermore, the ECB could also resort to the OMT if necessary. As stated in a press release yesterday, “The Governing Council is determined to use all the instruments available within its mandate”,” TD clarifies
“Markets are aware of this and moves have been limited so far considering the circumstances.Portuguese 10-year yields are up a relatively modest 28bp, and Spain and Italy’s are up only 19bp, magnitudes lower than in 2012. The EURUSD, after falling as low as 1.09 in early trading, has since rebounded to 1.12. Euro softness relative the safe haven JPY and CHF has been more pronounced. The Swiss Central Bank has confirmed intervening in the market to limit CHF appreciation,” TD notes.
“All things considered, the euro is likely to remain range bound unless the likelihood of a Grexit materially rises, in which case, the EURUSD could easily retest its 2015 lows of 1.05 or less. If the exchange rate were to fall significantly below parity, we could see coordinated G7 central bank action to support the currency,” TD projects.
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