As the Orbex strategy team have been warning about yet another Greek tragedy for the last couple of weeks, starting early trading hours of 2015 the Greek political and economical instability started to once again struggle in an already distressed European economic stability.
As expected, the Greek Prime Minister Antonis Samaras’ presidential candidate failed to pass the parliament. The Greek parliament had to get 180 votes in order to avoid the public going to the polls once again.
Just before the New Year on Monday, the 29th of December Prime Minister Antonis Samaras announced that the parliament would be dissolved and a public election will be held on the 25th of January.
What makes the story different this time?
1. "Extreme left" party currently in the lead and there is a likelihood that they might actually take over the Greek politics very soon.
2. European economic structure is better established this time. This sort of gives Europe a relief that any drastic action from Greece would not create chaos in the region.
Despite these two major differences, there is one thing in common with the previous stories; depreciating Euro and rising mistrust towards the European economy.
Rapidly depreciating Euro and major volatility across all the financial markets in Europe is going to increase as we get closer to the Greek elections. This pressure is expected to push the ECB and Mr. Draghi to take extra actions just like they did previously. Volatility is sure to rise, and the pressure on ECB President Mario Draghi to "do something" will grow stronger than ever.
What about the Greek economy?
Right after the announcement of the dissolving of the parliament the 10 year Greek bond yields soared towards 9.5% rising by 1.3% in a day, while the Greek Stock index benchmark plunged by over 11% in a single day as crisis fears hit the market. Meanwhile, for the common European currency it was rather quite for a while. Euro demonstrated relative strength trading sideways for a while before hitting its psychological 1.2000 levels against the USD by the market closing of the first trading day of 2015. 1.2000 level is the lowest EUR/USD level since June 2010. Even 2012 Greek debt exchange did not manage to push the EUR to this low, although it was the largest sovereign debt crisis of the modern European history.
It just seems that Greece is living crisis to crisis since the beginning of the 2008 financial crisis without being able to pull its economic and political power together to follow European economic reforms. And now it might be the time of “far left” political party, Syriza.
If Syriza wins the elections, it might be literally the end of Greece’s European dream as the party leader Alexis Tripras has been promising to stop EU’s Austerity and Bailout programs and renegotiate the EU’s loan repayment terms. Additionally Syriza promises to increase the minimum wage by 50% and provide government subsidized heating and electricity.
But the million dollar question is: “If Greece had the money to provide all those promises why is its economy in this condition?” So for now, we say add a new term to your financial markets vocabulary in 2015; 'Greekovery' and hope for the best.
What can we expect from Euro for the upcoming week?
As the holiday season is over we are looking for a fundamentally rich week ahead of us. Starting with the German Prelim Consumer Price Index announcements prior to the Eurozone CPI figures later on during the week which is expected to created strong volatility. As we are at psychological barer and 4 year lows for Euro expectations are based on corrective movements for Euro on bullish side.
We also have the unemployment figures to be announced from Germany also ahead of the Eurozone unemployment announcements. And finally we will have the German Trade Balance figures announced on the last trading day of the week. If any negative announcement comes from the biggest European economy we will see EURO being plunged further down as the bearish bias are getting stronger and stronger each passing week.
Hence it is recommended to be cautious with long Euro entries and see every bullish attempt as an opportunity to short.
Authored by Orbex.com