Greek election looming over markets

Publication date: 14 June 2012
Author: Alistair Cotton, Currencies Direct

The Greek election over the weekend looms large over the currency markets. There is a genuine feeling of unease over what will happen to Greece over the coming months. But as ever with markets, uncertainty over the outcome is the main driver rather than the prospect of a Greek exit from the Euro-zone. The water was muddied further by an article in the FT by Alexis Tsipras, leader of the Syriza Party, suggesting he would keep Greece in the Euro-zone if elected. A month ago the dominant thought was that if an anti-austerity party formed a government, Greece would then start along the road to leaving the Euro. However, it is possible that Greece could remain inside the Euro-zone even if they were to default. Whatever happens on Sunday, next week will likely be an interesting one.

Across the major pairs the Euro has gaining ground in Asian trading overnight as details leaked (what a surprise….) that European leaders are prepared to discuss a European banking union at the next EU summit. It strikes us as another round of chicken between EU politicians and the market. Let’s hope they can actually deliver what is needed this time, rather than just proposing it and then thinking it wouldn’t matter if they failed to deliver. Euro-zone CPI is also due this morning, with consensus expectations of a YoY figure of 2.4%.
The Swiss Central Bank held interest rates this morning and also reaffirmed it will defend the 1.20 level against the Euro. If Greece were to leave the SNB’s resolve would be tested to the max as people dumped Euros and piled into the Franc. Although the SNB suggest that they will buy Euros in unlimited quantities, would that work in practise? And would they then have to offload (sorry diversify) the Euros into other currencies to avoid sitting on a huge stack of quickly depreciating currency.