EUR USD (1.2890) Surveys conducted among the Greek population since the election consistently show that at least 75 percent still want their country to stay in the eurozone. However, there are also several surveys that show that a considerable percentage of voters continue to support the left radicals who completely denounce the austerity programme and thus make the exit of Greece from the eurozone a probability hard to ignore, even for the ECB officials. In any case an overview of market comments leaves the impression that the exit of any country from the eurozone would be disastrous because of the risk of contagion; it would add to the list of precedents (bailout, default, etc.,) that have already punctuated the crisis. In his latest post, for instance, Paul Krugman expressed his fear that a Greek exit might lead to a run on Spanish and Portuguese banks, massive borrowing from ECB, finally leaving Germany to shoulder the burden or tip the balance. However, one should remember that many traders are, and have long been bearish on the euro. The ECB’s Luc Coene however has described a Greek exit as “not necessarily fatal”, which suggests that either the exit could be avoided or that there are official efforts which seek to limit the contagion should an exit occur. The euro remains vulnerable to a slide to 1.2805 or even to 1.2660. As we have previously mentioned, we believe this is due to the retreat of longer-term demand rather than increasing near-term scepticism. If anything, most traders were puzzled that the euro hadn’t fallen sooner. Only above 1.3095 will it get some relief.
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Deutsche Bank