19 Feb 2015
FX implications of a Greece deal – Nomura
FXStreet (Barcelona) - Research Analysts at Nomura, share the FX implications over a possible Greek deal, with optimism over an agreement remaining elevated in the near-term.
Key Quotes
“As in fixed income space, currency markets have been very resilient to negative headlines from Greece. In a way, despite negotiations progressing very “unsmoothly” the contagion effect seems almost entirely absent.”
“However, we are getting close to crunch time, and we think optimism about a deal being reached in the near term is too elevated (as evidenced by bullish trends across eurozone risk assets, especially bank stocks, broader equity markets and credit).”
“In the absence of progress on negotiations in the very near future, the capital controls/bank holiday scenario would have to be much more seriously considered.”
“In that scenario, we would want to make the following adjustments to FX views:
We would look to take profit on our EUR short basket trade vs GBP, PLN, HUF and USD, since the EM components in this basket could suffer in the face of short deterioration around Greece.
We might look to maintain downside optionality in EURUSD (our existing downside is out of the money and expires on Thursday).”
“That said, Greek euro exit (both in the reversible and full-blown versions) would not materially alter our medium-term euro forecast, which is driven by gradual downward pressure from fixed income outflows.”
“A Greek exit is not sufficient to materially alter fair value, growth outlook, or monetary policy. Hence, in the absence of notable contagion effects, the medium-term outlook would broadly remain in place, even if there were an initial fast-paced move to the downside.”
Key Quotes
“As in fixed income space, currency markets have been very resilient to negative headlines from Greece. In a way, despite negotiations progressing very “unsmoothly” the contagion effect seems almost entirely absent.”
“However, we are getting close to crunch time, and we think optimism about a deal being reached in the near term is too elevated (as evidenced by bullish trends across eurozone risk assets, especially bank stocks, broader equity markets and credit).”
“In the absence of progress on negotiations in the very near future, the capital controls/bank holiday scenario would have to be much more seriously considered.”
“In that scenario, we would want to make the following adjustments to FX views:
We would look to take profit on our EUR short basket trade vs GBP, PLN, HUF and USD, since the EM components in this basket could suffer in the face of short deterioration around Greece.
We might look to maintain downside optionality in EURUSD (our existing downside is out of the money and expires on Thursday).”
“That said, Greek euro exit (both in the reversible and full-blown versions) would not materially alter our medium-term euro forecast, which is driven by gradual downward pressure from fixed income outflows.”
“A Greek exit is not sufficient to materially alter fair value, growth outlook, or monetary policy. Hence, in the absence of notable contagion effects, the medium-term outlook would broadly remain in place, even if there were an initial fast-paced move to the downside.”