13 Feb 2015
EUR/USD: Downside risks dominate - Commerzbank
FXStreet (Córdoba) - The extraordinary Eurogroup meeting delivered no results and all eyes are now on the meeting on Monday. However, according to Esther Reichelt, analyst at Commerzbank, the currency market does not appear to expect an early agreement and the euro remains in wait-and-see mode.
Key Quotes
“Greece remains the overriding issue on the currency market. Hopes of an early agreement have been dashed so far. However, this is unlikely to have come as a serious surprise to anyone. After all, experience has taught us that conflicting parties find compromise proposals acceptable only once catastrophe is imminent”.
“Even if Monday’s Eurogroup meeting were to deliver no results, this is unlikely to unsettle markets as long as Greece has sufficient funds available to cover its daily expenses and the ECB is ensuring Greek commercial banks’ liquidity through its Emergency Liquidity Assistance (ELA)”.
“Should a solution be a long time in coming the ECB is increasingly likely to tighten the screws. If the ECB imposes a deadline by which an agreement must be reached, with the threat of an end to ELA disbursements, the FX market will most likely wake up”.
“So far, the euro has shown a relaxed reaction to the whole Grexit-debate. But the market seems to underestimate the Grexit risks. The more it becomes apparent that no fudge compromise can be reached the more this will also be reflected in euro exchange rates. As long as attitudes are hardened the downside risks will dominate for the euro”.
Key Quotes
“Greece remains the overriding issue on the currency market. Hopes of an early agreement have been dashed so far. However, this is unlikely to have come as a serious surprise to anyone. After all, experience has taught us that conflicting parties find compromise proposals acceptable only once catastrophe is imminent”.
“Even if Monday’s Eurogroup meeting were to deliver no results, this is unlikely to unsettle markets as long as Greece has sufficient funds available to cover its daily expenses and the ECB is ensuring Greek commercial banks’ liquidity through its Emergency Liquidity Assistance (ELA)”.
“Should a solution be a long time in coming the ECB is increasingly likely to tighten the screws. If the ECB imposes a deadline by which an agreement must be reached, with the threat of an end to ELA disbursements, the FX market will most likely wake up”.
“So far, the euro has shown a relaxed reaction to the whole Grexit-debate. But the market seems to underestimate the Grexit risks. The more it becomes apparent that no fudge compromise can be reached the more this will also be reflected in euro exchange rates. As long as attitudes are hardened the downside risks will dominate for the euro”.