Greek Voters Vote ‘No’ in Referendum – FX Market Braces for Euro Volatility

The 'no' votes appear headed for victory in the Greek referendum, raising the likelihood of a Grexit from the European

Initial results are showing that Greek voters have voted against austerity cuts which were viewed by prerequisites to help the country gain further bailouts from the EU as money at local banks is running out.

In the buildup to today’s vote, the referendum had been broadcast in the country as a vote on whether to remain in the European Monetary Union (EMU) and continue to use the euro. ‘Yes’ advocates view such a vote as the only answer to gaining credibility on the international markets to gain further funding from the EU to restructure their debts. On the other hand, ‘no’ voters had been led by Prime Minister Alexis Tsipras. Although outside observers don’t believe that Greece would be able to source further funding without enacting cuts, Tsipras was confident going into the vote that there is an alternative to austerity cuts that would also include the country remaining in the EMU.

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Financial markets react

With the vote complete, eyes are now turning towards the reaction in the foreign exchange and European equity and fixed income markets. Following last week’s decision by Tsipras to send the country’s fate to a referendum, analysts viewed the move as likely to lead Greece into default and to trigger a ‘Grexit’.

With the financial markets loathing confusion, last week’s news sent the euro lower against other major currencies and European stock markets lower. However, after the EURUSD had opened lower to nearly 1.10 last week, from a previous close of about 1.12, the currency pair rebounded back above 1.12 before settling at 1.11 to close the week.

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As the market prepares to interpret the new set of results from today’s voting, banks and brokers are on heightened alert. Heading into the vote, banks and brokers were on the defensive, as they announced limits on available credit being made available for overnight positions. In addition, banks have been bracing for volatility on the open of trading at currency, futures, and Asian markets begin to open late Sunday night. As a result, firms such as HSBC, JPMorgan and Deutsche Bank have confirmed that they have added extra staff that is being made available to handle the initial flood of market movement.

Expectations

Although traders and the financial markets appear to have come to grips with the reality of a Grexit, with last week’s initial spikes lower in European stocks and the euro rebounding, there remains an uncertainty of how everything will play out. Ultimately, traders may not gain clarity of the future of Greece’s involvement with the EMU until statements from European leaders weigh in with their opinions. However, those statements may not emerge until Monday morning.

Another factor expected to move markets are how the vote effects things on the ground in Greece. According to Greek government members, the country isn’t at risk of a food or medical supply shortage. However, a lack of fresh euros will put pressure on the government to meet salaries of government workers. An inability to meet payrolls could cripple further the country’s weak economy.

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