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Running Out Of Time: What Greece Means For Major FX? – Credit Agricole

After several failed attempts to break the logjam between Greece and its creditors in recent days, the negotiations will resume on Saturday.

Our expectation is still for a successful outcome from the talks, which should give Greece access to funds to repay the IMF next Tuesday (according to recent media reports, Athens could claim the needed EUR1.5bn from its share of ECB's SMP profits).

If this is confirmed over the weekend, we suspect that USD could emerge as the biggest beneficiary and expect it to extend its gains against a broad range of G10 currencies. While a relief bounce in EUR cannot be excluded, we doubt that it will be sustained and expect renewed weakness especially against risk-correlated currencies and USD.

The risks to the above view have clearly grown of late, however, and we think that caution is warranted ahead of the talks over the weekend. Indeed, we think that investors will lighten up on FX risk today.

If Greece and its creditors fail to reach an agreement this could weigh on risk sentiment as default fears soar at the start of the new week. EUR could weaken especially against liquid G10 currencies like JPY and USD.

The positive correlation between USD and risk in recent months as well as investors' unwinding of EUR-funded carry trades may temper EUR/USD downside but only to a degree. At the same time, in the case of EURCHF, the threat of potential SNB intervention as well as capital controls could discourage aggressive selling. We therefore still see upside risks for USD/CHF from here.

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