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23 Apr 2015
Greece pouring uncertainty on euro – Nomura
FXStreet (Barcelona) - Jens Nordvig, FX Strategist at Nomura, argues that although euro’s path to the downside is certain, any Greek related headlines will pose a two way risk.
Key Quotes
“Over the last several months, we have attempted to not put too much weight on Greece in our trading strategy. And that remains the case. But the issue is too big to ignore entirely. While we can make arguments that the contagion should be contained, it is hard to predict market psychology. It could be the case that sentiment on peripheral debt will shift or that European equities will take a big hit on a further significant deterioration around Greece. Importantly, this could be the case, even if there are few obvious forced sellers out there.”
“We have observed that the knee-jerk reaction of the Euro to ‘bad headlines’ from Greece is negative. This was the case in EURUSD and EURJPY when the ECB made Greek government bonds ineligible for regular refinancing for example on 4 February (effective 11 February).”
“In addition, since headlines are likely to be piecemeal, and hence not fully resolve the uncertainty around Greece in one step, the situation is unlikely to reach one of those bearish climaxes that lead to a big reversal in the short-term.”
“We are trading for gradual Euro downside, both in EURUSD and EURJPY. It is a boring strategy, but it seems to be the right stance at the moment, in our view.”
“But if the Euro has a sharp drop, driven by some specific Greek news, we are likely to close out exposure, as it could open the way for more two-way risk, and we don’t think significant follow-through to the downside is likely as a function of Greek news alone.”
Key Quotes
“Over the last several months, we have attempted to not put too much weight on Greece in our trading strategy. And that remains the case. But the issue is too big to ignore entirely. While we can make arguments that the contagion should be contained, it is hard to predict market psychology. It could be the case that sentiment on peripheral debt will shift or that European equities will take a big hit on a further significant deterioration around Greece. Importantly, this could be the case, even if there are few obvious forced sellers out there.”
“We have observed that the knee-jerk reaction of the Euro to ‘bad headlines’ from Greece is negative. This was the case in EURUSD and EURJPY when the ECB made Greek government bonds ineligible for regular refinancing for example on 4 February (effective 11 February).”
“In addition, since headlines are likely to be piecemeal, and hence not fully resolve the uncertainty around Greece in one step, the situation is unlikely to reach one of those bearish climaxes that lead to a big reversal in the short-term.”
“We are trading for gradual Euro downside, both in EURUSD and EURJPY. It is a boring strategy, but it seems to be the right stance at the moment, in our view.”
“But if the Euro has a sharp drop, driven by some specific Greek news, we are likely to close out exposure, as it could open the way for more two-way risk, and we don’t think significant follow-through to the downside is likely as a function of Greek news alone.”