There is an unusual silence since US market close on Friday by both sides (Greek leaders & Troika/EU members) which is making a case for possible deal by Monday morning (before Asia opens). The EURO climbed to Friday sessions high of around 1.1387 & Greece ETF also rose around 2% after market hours in Greece.
If there is even a makeshift deal by Monday morning, technically, EURO may jump initially towards 1.15324/675 and only sustaining above 1.16, it may target 1.20. Consecutive closing above 1.20, it might scale 1.25 in the near term.
But, sustain over 1.16-1.20 might not be possible for EURO as the market may took the deal as the same uncertainty regarding Greece & EU undergoing for the last few years and the great game of chicken will continue for another couple of years or forever. In any way, Draghi & Co will not let EURO fly to 1.25 area again, because their year long effort on QE will be put into peril and all the EURO nations will lost competitive edge because of strong currency (EURO). The EURO will eventually fall to its cycle lows of 1.10-1.08-1.05 in the next few weeks, (depending upon ECB & Fed monetary action,QE etc), if it failed to break 1.16 convincingly (High probability scenario).
If there is no deal by Monday (Morning/Afternoon/Night), EURO may initially crashed to 1.10-1.08-1.05 (depending upon the news flow).
Even, if there is no deal by Monday or even by June-30 and there is real possibility of Greece default & ultimate Grexit, the zone of of 1.05 might be heavily guarded, thanks to both Fed & ECB to avoid any further capitulation and stabilize the financial market fast. The market will take it, as a result of no deal & subsequent Grexit, a great element of uncertainty has been removed by kicking Greece out of EURO (low probability scenario).
Technically, consecutive closing below 1.05, EURO may further fall to 1.00-0.90 zone in the near term.
To put it simply, default of Greece & subsequent Grexit may not be allowed at all by Germany (for their own financial interests/markets as German banks are most exposed to Greece default) and US (for overall global market stability, to avoid a Lehman like crisis again and NATO related strategic & political reasons).
The main concern is might be the Greece banks, which are facing a continuous massive fund outflows/withdrawals for the last few days and ECB approved only 1.8 bln EURO as ELA for them against their demand of 3 bln EURO. The strategy by ECB & Co and IMF is to deliberately provoking an unscheduled banking holiday in Greece on Monday to force Greece to its knees and accept the bail out austerity conditions. Greece PM, on the other part is busy in honey mooning with Russia to put reverse pressure on EU/US. But Russia may not interfere in this comedy drama of Greece at this moment and theoretically, it may wait for an ultimate Grexit accident after July'15 to get Greece out of NATO. Interestingly, China may also interfere later in this saga to get pie of the militarily strategic locations of Greece in the event of NATO exit. For this precise reason, US will simply not allow Greece to either exit EURO or NATO.
There was also some market talk that EU/ECB will provide additional funding of 10 bln EURO to Greece to pay the total loan by IMF of the same amount and keep the IMF out of picture But IMF was reportedly not agreed with that proposal. Total Greece bail out programme so far is around 240 bln EURO, which is supposed to be paid to IMF till 2030 & others till 2057. But considering the scale of global QE (Fed/ECB/BOJ), the amount is tiny and there may not be any major crisis except a knee jerk reaction in the event of a disorderly default or accident unless contagion effect is prevented.
Theoretically, Greece may return to the age of Drachma (GRD) in the event of Grexit to pay its internal bills. But GRD may not be accepted by other countries at all & they will need EURO/USD for its international payment obligations (if it able to pay at all). In that scenario, 1000 GRD may be exchanged for 1 USD (last rate was 300 before EURO). Eventually, GRD might be treated as trash papers by own Greek peoples with inflation skyrocketing to above 500%, just like some of the African countries had same kind of situations few years ago.
As par rough street estimates, the cost of GRD currency printing & circulation might be gone haywire to above $0.5-1.5 bln alone in today's market rate, which is nearly impossible for Greece to afford as it may not be possible for them to get the "heavy volume discount" enjoyed by US/EU/BOJ, thanks to their 24/7 printing initiatives.
So, for Greece, its an epic end of great game of chicken and it will be literally forced to agree to some of the realistic austerity programme proposed by Troika (reforms of the pension & tax system and anti-corruption moves) and for EU/IMF/US its simply a catch 22 situation. Both has to sacrifice some thing in order to get the deal done. For the time being, pension reform proposal may be put on hold until Greece stabilized its financial condition in a more serious manner and is able to stand on its own feats.
For a wonderful country like Greece, its a sad & depressing day. Greece is also a great tourism hub, given the scenic beauty of the country, its remote islands and sea beaches & historical places, but tourists need to be assured about ATM liquidity also to keep its great tourism potential intact along with competitive currency wrt to its neighbour like Turkey (Lira).
During the days of GRD, Greece economy had competitive export edge (for relatively weak currency). It has huge ship building industry. It also borrowed miniscule as the yield (GRD) was much higher then & financed its deficit by way of internal taxes. When got into EURO, Greece borrowed like a mad, thanks to relatively low yield, build infrastructures & "white elephants" all over the country & hired more people for bureaucratic jobs. But it never paid the principal of the debt, only paid the interests & kept rolling over the principal (debt restructuring like a Ponzi scheme). Eventually, Greece economy is devastated & it stands where it is today with unemployment sky rocketing. In the process of EURO, it had also lost its strengths of economy (cheap labour force, agricultural products, tourism hub etc) and competitive edge with its immediate neighbors like Turkey/Tunisia.
Certainly, a deal could be sealed by Monday or by June-30, but the whole concept of EURO need to be evaluated in its true perspective and all the European nations should participate in EURO more actively (UK is threatening to leave EURO) and fresh members (nations like Turkey/Tunisia etc) should also be incorporated to have the same currency edge all over EU. If Greece like situation continues for the next few years and eventually it exits EURO, other PIGS countries could follow and also Spain, Italy & later France, leaving only Germany (major country) in it, which will show that EURO is basically a failed concept in this era of currency devaluation.
Just imagine the situation of US or even Japan in a common currency concept (like EURO), where it has no access to control its own currency or has no 24/7 currency printing machine of its own and was asked to do structural changes in the economy swiftly rather than doing continuous QE (currency control/manipulation/devaluation etc) after the 2006-08 great economic crisis.
Bottom Line : Technical Trading Levels (Positional)
| SL</>0.003 | FROM SLR | |||||
| EURUSD | LTP | 1.1347 | ||||
| T1 | T2 | T3 | SLR | |||
| Strong > | 1.1600 | 1.2000 | 1.26* | 1.3000 | <1.14 | |
| Weak < | 1.1400 | 1.1532 | 1.10-1.08 | 1.05* | 1.00-0.90 | >1.16 |
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