The Greek 'No' sent EUR crosses lower but the initial move has already partly reversed. We see two main reasons for the limited reaction in the FX market: (1) should a Grexit materialise it would not be a 'Lehman' scale event, and/or (2) FX markets have learnt an important lesson from the currency war of H1, i.e. that central banks are highly alert to currency moves.
We expect the ECB signalling its readiness to act in the event of a Grexit will be enough to contain the situation but, importantly, the Fed would most certainly, in our view, postpone a first hike in this case. As a result we see EUR/USD downside with or without a Grexit - but we stress it will be limited and parity is not on the cards.
We recommend leveraged accounts sell EUR/USD. We are short the cross in our Danske FX Trading Portfolio. Real money funds should reduce near-term hedge ratios on USD assets. We recommend EUR- or DKK-based corporates maintain high 3M hedge ratios on foreign-currency expenses.
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