EUR Not Bothered By Greek Outcome

Greek PM fails to acquire votes

Snap Greek elections end of January

Is “Grexit” a worry for EUR?

EUR Bear eyes €1.20 with confidence

It’s a difficult week to get excited about in Capital Markets. Most of the necessary positional business that had to be done will have been concluded well ahead of the New-Year “turn” due to the massive liquidity limitations. Investors should not be surprised to see unexpected event risk, and weak speculative position taking to guide this weeks currency move as we count down remaining few days of the calendar year.

Greece – third time a charm?

In the eurozone, the markets have been bracing themselves for this morning’s third round of Presidential polls in Greece after two failed votes already this month. Greek Prime Minister Samaras, who had previously offered early elections if his candidate was to be elected, had again repeated that he was doing everything in his power to prevent a political crisis after his party fell short of the compulsory votes. It seems that his actions and words have fallen on deaf ears as the current Greek government has failed for a third time to obtain the number of necessary votes (180) this morning. This will require the Greek parliament to be dissolved in 10-days and new elections to be held within a month (whispers of a January 25 snap election).

So far, it seems that the current political uncertainty has been well contained and is affecting mostly Greek assets. Shorter dated Greek paper is suffering the most, with 5-year bonds backing up +50bp to +9.43%. Obviously not helping the situation is the lack of liquidity within the Christmas and New Years’ holidays. To date, it seems that the other Euro peripheral bond markets are instead been helped by ECB QE expectations in Q1, 2015. New Greek elections would require periphery product to reprice with wider spreads for event risk purposes as it brings back the spectra of a “Grexit” from the EUR.

Currently, it’s the lack of market interest that is providing a “no” show by fixed income traders. Nervous investors continue to acquire German bunds, mostly on the back of the opinion polls favoring the opposition SYRIZA party (strong opponent of the EU/ECB/Troika agreement). Whatever the outcome, a ‘new’ Greek government would have to abide by previous Euro commitments to ensure continued external support.

The 18-member single currency has again eased below the psychological €1.22 handle on the news that Greece’s Dimas has failed in his attempt to become the new president. The EUR’s pre-election vote range was relatively tight (€1.2173-1.2222). Things now become rather interesting for the Eurozone in the latter half of January. The market is currently expecting an ECB QE announcement on January 22, and in hot pursuit a Greek within days there after. The EUR bear will feel rather comfortable as we head into the New-Year. They remain confidently fixated on their €1.20 short term target. A break above the €1.2340 resistance would alleviate some of the immediate EUR pressure.

Abe delivers no surprises

As correctly speculated by the market last week, Prime Minister Abe’s Japanese government has confirmed it would offer a fiscal stimulus package in the amount of $29b (3.5T). The bulk of the package is comprised of subsidies and merchandise vouchers for individual households. The government’s obvious objective is to help stimulate consumption. The packaged announced is expected to provide more relief and prevention measures targeted at the great earthquake-hit regions, with the government estimating the impact of stimulus at +0.7% of added GDP growth. Even with all the subsidies, there is regional speculation that PM Abe is still expected to lower the corporate tax rates by -3.3% over the next two-years.

Like most of the other major currency pairs, USD/JPY (120.47) price action seems to have taken a necessary breather. For the yen bears, the overall scope is for dollar gains back towards 121.86, this year’s dollar high print earlier in the month. The yen bear does not believe that they have to be aggressive in their actions. They currently remain comfortable buying USD on dips and are presently looking to add to their ‘short’ yen positions just below 119, this month’s low and where there is a plethora of USD bids located.