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Greece Hopes to Restart Debt Deal Negotiations. Will the EU Oblige?

Greece Hopes to Restart Debt Deal Negotiations. Will the EU Oblige?

Ilya Spivak, Head Strategist, APAC

Talking Points:

  • Euro Declines, Yen Gains as Greek Referendum Rejects EU Debt Deal Terms
  • EU May Opt Against Restarting Negotiations, Opening the Door to “Grexit”
  • Follow All the Latest Greece Crisis News-Flow via the Real Time News Feed

The Euro underperformed in overnight trade after Greece voted against a deal swapping reforms for bailout funding offered by the country’s creditors at a referendum Sunday. The final tally showed 61.3 percent of respondents opted to say “no”, supporting the position of Prime Minister Alexis Tsipras, while 38.7 percent responded “yes” to the EU-backed plan.

While the outcome does not necessarily equate to a Greek exit from the Eurozone, it does seem to make such a scenario more likely. This fueled risk aversion across the financial markets. The sentiment-linked Australian and New Zealand Dollars came under pressureearly in the day (though those losses have since unwound) while the safety-geared Japanese Yen is traded broadly higher.

Looking ahead, the tame economic calendar on offer in European hours seems unlikely to overshadow investors’ focus on Greece-related matters as the markets wait for the EU’s response to the weekend’s news-flow. Greek Finance Minister Yannis Varoufakis – long a thorn in the side of the creditor camp – has resigned in what seems like a gesture meant to encourage new negotiations now that Mr Tsipras feels his mandate is renewed.

For their part, EU officials are preparing for a summit on the matter tomorrow. In the interim, news-wires indicate that European Comission President Jean-Claude Juncker is set to hold a conference call with European Council President Donald Tusk as well as Eurogroup chief Jeroen Dijsselbloem and ECB President Mario Draghi today.

From here, the EU’s willingness to entertain Greek overtures is critical. To resume negations now may be seen as rewarding Athens’ intransigence. This is a precedent that the EU may not want to set as Spain’s Syriza-like Podemos party prepares for elections just around the corner. Meanwhile, with most Greek debt now held by non-private entities, default contagion risk appears diminished. Brussels may opt to leave Greece in the wind, with any follow-on economic hardship a cautionary tale for any would-be imitators.

On balance, little is likely to be clarified in the near term as EU policymakers weigh their options. S&P 500 index futures are pointing sharply lower however, warning that risk aversion is likely to remain a dominant theme in the hours ahead.

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Asia Session

GMTCCYEVENTACTEXPPREV
00:30AUDTD Securities Inflation (MoM) (JUN)0.1%-0.3%
00:30AUDTD Securities Inflation (YoY) (JUN)1.5%-1.4%
01:30AUDANZ Job Advertisements (MoM) (JUN)1.3%-0.1%
05:00JPYLeading Index CI (MAY P)106.2106.2106.4
05:00JPYCoincident Index (MAY P)109.2109.1111.0

European Session

GMTCCYEVENTEXP/ACTPREVIMPACT
06:00EURGerman Factory Orders (MoM) (MAY)-0.2% (A)2.2%Low
06:00EURGerman Factory Orders (YoY) (MAY)4.7% (A)1.3%Low
07:15CHFCPI (MoM) (JUN)0.1% (A)0.2%Medium
07:15CHFCPI (YoY) (JUN)-1.0% (A)-1.2%Medium
07:15CHFCPI - EU Harmonized (MoM) (JUN)0.2% (A)0.0%Medium
07:15CHFCPI - EU Harmonized (YoY) (JUN)-0.6% (A)-0.9%Medium
07:30EURMarkit Germany Construction PMI (JUN)50.7 (A)50.8Low
08:00GBPNew Car Registrations (YoY) (JUN)12.9% (A)2.4%Low
08:10EURMarkit Germany Retail PMI (JUN)54.0 (A)55.8Low
08:10EURMarkit Eurozone Retail PMI (JUN)50.4 (A)51.4Low
08:10EURMarkit France Retail PMI (JUN)48.9 (A)48.7Low
08:10EURMarkit Italy Retail PMI (JUN)46.7 (A)48.3Low
08:30EUREurozone Sentix Investor Confidence (JUL)18.5 (A)17.1Low

Critical Levels

CCYSupp 3Supp 2Supp 1Pivot PointRes 1Res 2Res 3
EURUSD1.09931.10461.10801.10991.11331.11521.1205
GBPUSD1.54231.55071.55391.55911.56231.56751.5759

--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

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