As Pro-Bailout Parties Won Greece Elections, Yen And Dollar Pressured

Risk markets opened the week higher on news that Greece would temporarily avoid a euro exit as the pro-bailout parties won enough seats to secure a majority in the parliament after Sunday's elections. The New Democracy claimed 30.1% of votes or 80 seats, plus 50 seats bonus for victory. Socialist Pasok took 12.6% or 33 seats. Thus, the total for the pro-bailout parties is 163 seats, which was well enough to secure majority in the 300-seat parliament. Anti-austerity Syriza came in second with 71 seats.

EUR/USD spiked higher to 1.2747 before treating back below 1.27 level at the time of writing. AUD/USD also dumped to 1.0134 before retreating mildly. One development to note is that the Japanese yen is the weakest one on reaction to the Greek news and was sharply lower across the board. This should reflect reduced expectation and need of immediate and coordinated stimulus from world central banks as the Greek situation stabilized for now.

New Democracy leader Samaras declared that Greeks have "expressed their will to stay anchored with the euro, remain an integral part of the eurozone and honor the country's commitments." And Samaras said that "there is no time for political games" and Greece "must be governed." He added that the country "will cooperate with our European partners to boost growth and tackle the torturous problem of unemployment." Election winner Samaras will now begin to form a coalition with Socialist Pasok. Meanwhile, Eurogroup said in the statement the results in Greece elections "should allow for the formation of a government that will carry the support of the electorate to bring Greece back on a path of sustainable growth." Eurogroup reiterated the commitment to assist Greece and expects Troika to return to Greece as soon as a new government is formed.

In May, New Democracy got 108 seats as winner while Syriza got 52 seats and Pasok got 41 seats. So, this time, New Democracy gained 22 seats, Syriza gained 19 seats. But, Pasok lost 8 seats. Combining New Democracy and Pasok, they actually gained just 14 seat, which was indeed under Syriza's 19 seats gain. So, has the Greeks really expressed their will to stay in euro? Maybe yes but we doubted. The political situation in Greece will remain uncertain in the new few years. But for now, Greece exit worry is temporarily relieved, the problem isn't really solved yet. New Democracy will try to negotiate the bailout package with EU/IMF and while some officials have already indicated willingness to modify to easier terms.

Looking ahead, G20 leaders will kick off a two-day summit in Mexico today while Fed will announce rate decision on Wednesday. The need to immediate measures should be drastically reduced based on Greece situation. Nonetheless, markets will also scrutinize Bernanke's press conference for hints on the chance of QE3, or another operation twist. As for today, data from UK saw Rightmove house price rose 1.0% mom in June. Canada international securities transactions and US NAHB housing market index will be released.