Home Forex Analysis And Forecasts EUR: Greece Back Against The Wall Or Against Europe? - Credit Agricole

EUR: Greece Back Against The Wall Or Against Europe? – Credit Agricole

Latest developments: the Greek government is calling on its people to vote ‘no’ to Sunday’s referendum and reject the austerity measures requested by European institutions to maintain their support of the Greek economy. For Mr Tsipras a ‘no’ vote would only reinforce his position vis-à-vis the Eurogroup and it would not be synonymous of a ‘Grexit’ at all.

In response, the Eurogroup rejected Athens’ request for a short bailout extension. The ECB decided to maintain ELA funding at Friday’s levels, which left little option for the government but to close banks and financial markets this week, possibly longer, and to implement capital control measures. In the near-term the ECB could be forced to increase collateral haircuts after a missed IMF payment, but a complete ELA shutdown looks unlikely as long as there is a reasonable prospect of a resolution.

Our view: the ‘Grexit’ question is still not officially on the table. With no mechanism at hand, the Eurogroup can only put pressure on the Greek people to put, in turn, pressure on its own government to reach an agreement to avoid political instability. A ‘yes’ vote would make it easier for a longer term agreement to be reached eventually while a ‘no’ vote would lead to a more dramatic escalation. The ‘Grexit’ scenario is still not officially on the table at this point as neither of the two parties have put Euro membership at stake. As such, we still believe a ‘Grexit’ can and should be avoided irrespective of the referendum result.

FX market: we maintain our short term target on EUR/USD towards parity for the time being. Even in a Grexit scenario we do not see the status of the euro being at risk considering that the market continues to look at the Greek situation as an isolated case.

'This forecast has been provided under specific arrangement with eFXnews.'

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