EUR-USD (1.4290) Today the Greek parliament will vote on the latest austerity plan. Market participants are naturally concerned about the outcome, especially as the most vocal MPs seem to be those who will vote against it. However, we think investors’ baseline scenario is that the bill will pass. This is because this is not the first ‘crucial point in the debt crisis’; this is not the first ‘critical parliamentary vote’; this is not the first time that journalists have been told that ‘there is no Plan B’. Seasoned followers of the unfolding crisis assume that EU finance ministers will not simply pack up their bags and go home if the vote is not passed; work on a solution will go on. The French proposal for a voluntary debt rollover into longer maturities is already one such solution. So why the risk-aversion in the first place? The nagging concern comes from the potentially catastrophic consequences that are associated with the tail-risk. So despite their conviction that more Greek austerity is on the way, traders remain only cautious holders of euro – doubly so over the weekend.
Yesterday’s rebound provided evidence that there may be few leftover longs from last week, meaning that the near-term downward pressure may have gone. Still, until 1.4455/60 is overtaken, we cannot count on a reliable stabilisation. So the euro could simply be bound in a holding pattern. At least, nearby support has improved at 1.4185.
Market Bias Index
Apart from the CHF, which traders are likely to perceive as much as 2 percent overvalued against both the USD and the EUR, most currency pairs are not too far away from their perceived fair-value.
Deutsche Bank
Fixed Income Research – Global