Friday’s Greek shock still runs the markets and UBS believes that currency markets contained ahead of Greferendum.
Based on the decisions taken Athens stock exchange will be closed on Monday as well as Greek banks being shut down for a “bank holiday” until 7th of July with capital controls imposed that Greek people can not withdraw more than EUR 60 per day. Most investors did not expect such move, nevertheless, risk managers worldwide have been preparing for it for years probably SNB was also one of those involved key parties for a back up plan. Thus, “the reaction on foreign exchange markets was contained in the first few hours of trading” noted by the UBS strategies Thomas Flury. Proving that the market is quite well insured against any unexpected moves.
UBS EURUSD trade idea
Expectations for the Fed to hike its interest rates by December have dropped, by this morning, to “only a 50% chance of such a hike by year-end,” as a result of Greek drama. “Greece is to hold a referendum on whether to stay in the Eurozone and accept harsh austerity measures, or leave it and risk drifting deeper into poverty.”
UBS Greferendum expectations involve a downward pressure to see Euro at 1.05 level in three months time. (Maybe within few days?)
UBS EURCHF trade idea
The Swiss franc has not appreciated much against Euro due to the fact that Swiss National Bank has intervened to prevent EURCHF from falling below May lows of around 1.03. Furthermore, as investors would like to move their funds to a more secure Swiss safe heaven, Greek bank holiday and capital controls constrain such move, as overseas transfers of cash are prohibited, except for vital, pre-approved commercial transactions. As a consequence UBS report comments that UBS analysts expect “the EURCHF to remain stable and float between 1.03 and 1.05.”
UBS to long GBPAUD
UBS identifies longing GBPAUD to be a tactical move as investors looking for safety will choose GBP, over AUD, for it being more liquid. “We believe the Bank of England is much closer to a rate hike than the Reserve Bank of Australia, or, if the tide should turn, the latter is more likely to cut than the former,” indicated by UBS strategist Thomas Flury. Furthermore, Pounds ability to hold on against USD’s pressure on Friday, which Aussie failed to stand, further supports the recommendation.