G10 fx weekly 2 july 2015

Group Economics

G10 FX Weekly

Macro & Financial Markets Research Georgette Boele, + 31 20 629 7789 Roy Teo, +65 6597 8616

FX scenarios on Greek vote

2 July 2015 • • •

Currency markets are currently very complacent A Greek YES-vote will result in only a temporary recovery of the euro due to a refocus on cyclical factors… …while a NO-vote could trigger market volatility and a lower euro

Relative calmness in the market

A NO-vote could trigger significant market moves

On Monday morning the euro fell sharply in thin market

If the result of the Greek referendum is a NO-vote, this could

conditions, because of the increased risk of a Greek default

trigger market volatility. This is because the risk for a Grexit

and euro exit. Surprisingly, it staged a sharp recovery

would rise sharply. The results of exit polls will likely come in

afterwards. This reflects that the market was already

before financial markets open on Monday. We expect a risk-off

positioned for euro weakness so some investors used the

scenario with safe haven currencies benefiting. It is likely that

lower euro to close short positions. In addition, there is

the euro will fall under pressure across the board. EUR/USD

confidence that if a Greek exit were to occur, the contagion risk

could test the previous low in EUR/USD on 13 March just

would be limited. This is because exposures to Greece have

below 1.05 in the days that follow. The Japanese yen and the

declined over the last few years. Furthermore, the ECB’s QE

Swiss franc will rally strongly in our view, because of their safe-

and OMT programmes are available to limit volatility and stress

haven characteristics. A stronger Swiss franc is likely to trigger

in financial markets. Moreover, the Swiss National Bank

FX intervention by the Swiss National Bank again. A yen rally

intervened in currency markets to weaken the Swiss franc

to 120 against the US dollar cannot be ruled out. This is likely

which indirectly supported the euro. Later during the week, the

to trigger verbal intervention from the Bank of Japan. On the

euro fell under pressure again versus the US dollar as some

other hand, growth-sensitive and commodity currencies will

improvement in investor sentiment resulted in a refocus on

weaken in our view.

fundamentals and cyclical factors again. US economic data came in stronger-than-expected and this supported the US

ABN AMRO major currency forecasts

dollar across the board. In addition, investors have adopted a wait-and-see approach as they await the Greek referendum outcome on 5 July. In the remainder of this report we focus on the impact of a YES or NO vote in the Greek referendum. Our base scenario is that there will be a Yes-vote that will open the door for a new deal between Greece and its creditors.

A YES-vote will result in a refocus on cyclical factors A YES-vote will result in an improvement in overall investor sentiment and a refocus on economic fundamentals and monetary policy divergence. We expect safe-haven currencies such as the yen and the Swiss franc to weaken. The euro may post a recovery but we expect this to be temporary as the market will refocus on monetary policy divergence again. This week US economic data have surprised market consensus positively, especially US employment report was strong. As a result, a September rate hike by the US Federal Reserve will be increasingly likely (our call). This outlook should support the US dollar across the board even as the Greek debt crisis eases. This is because the US dollar is currently driven by cyclical forces such as the relative economic performance and the outlook on the Fed.

EUR/USD USD/JPY EUR/JPY GBP/USD EUR/GBP USD/CHF EUR/CHF AUD/USD NZD/USD USD/CAD EUR/SEK EUR/NOK EUR/DKK

02-Jul 1.1085 123.19 136.55 1.5603 0.7104 0.9482 1.0511 0.7606 0.6685 1.2603 9.3497 8.7963 7.4603

Q3 2015 1.00 125 125 1.47 0.68 1.05 1.05 0.73 0.69 1.27 9.50 9.00 7.46

Q4 2015 1.00 128 128 1.49 0.67 1.05 1.05 0.72 0.65 1.30 9.50 8.50 7.46

Source: ABN AMRO Group Economics

Q1 2016 1.05 130 137 1.52 0.69 1.00 1.05 0.70 0.65 1.31 9.50 8.50 7.46

Q2 2016 1.05 135 142 1.50 0.70 1.00 1.05 0.68 0.63 1.33 9.50 8.25 7.46

Q3 2016 1.10 135 149 1.51 0.73 0.95 1.05 0.67 0.62 1.34 9.50 8.00 7.46

Q4 2016 1.15 135 155 1.51 0.76 0.96 1.10 0.66 0.62 1.35 9.50 8.00 7.46

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G10 FX Weekly - FX scenarios on Greek vote

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