Greece fears linger – BTMU

FXStreet (Barcelona) - With Greece set to present a fresh set of reforms next week, Derek Halpenny, European Head of GMR at Bank of Tokyo-Mitsubishi UFJ, believes that euro volatility may pick up again due to the Greek uncertainty.

Key Quotes

“Our belief that the EUR/USD move higher is nothing more than a short-term squeeze is based on the view that nothing has changed to argue for a sudden turn in the trend. The policy divergence story may be well-known now, but try telling that to the US rates market that remains under-priced even relative to the new more modest rate trajectory revealed by the FOMC this month.”

“Another reason against the argument that the euro can reverse course is the uncertainty related to Greece. We have argued strongly that a deal would be reached but we certainly are not as confident in that view as we were.”

“Yesterday, ECB Council Member Weidmann suggested in an interview to be published this weekend that the risk of an unorderly default in Greece was rising. An unorderly default "can’t be avoided" if Greece decides not to meet its obligations.”

“He added that Greece had "squandered a lot of trust" and that time for Greece was running out.”

“Weidmann also pointed out that the debt servicing obligations for Greece were less burdensome than for Ireland or Portugal.”

“Next week will be crucial with Greece set to present a package of reforms it hopes will unlock fresh funding to avoid default. Euro volatility may well pick up again.”