News from Greece never really find their way to the back-burner. The debt stricken country remains a significant influence on the euro.
How could it play out now? Here are three Greek scenarios and their related EUR/USD outcomes by JP Morgan:
Here is their view, courtesy of eFXnews:
As EUR/USD keeps respecting 1.05-1.10 range as of late despite Greece pushing itself onto the front page again, JP Morgan is out with a note outlining 3 possible scenarios for Greece and what do they imply for EUR/USD along with its technical outlook for the pair as well.
What’s next for Greece? JPM outlines three scenarios: (1) resolution in Q2 until the next rollover hump in coming years; (2) intensification through Q2 then resolution in Q3 or Q4; and (3) intensification with a path towards EMU exit.
“The first path is our base case  – the troika is willing to concede on the primary surplus and provide funding in exchange for progress on structural issues, but Greece’s rollover profile in coming years preserves high odds of recurring funding stress over the long term. But if Greece goes quiet for the rest of 2015, we doubt the euro rises more than two to three cents to about 1.10,†JPM clarifes.
“The second scenario envisions no resolution this quarter and thus a default on official sector obligations to the IMF, deposit flight from the Greek banking sector, a cap on the ECB’s ELA facility, a liquidity crunch and capital controls. And if the odds of EMU exit remain low given the extreme disorder of a transition to the drachma, the euro’s downside might be 1.02,†JPM argues.
“The third scenario is the most adverse and would arise if the Greek government responded to an ELA limit and capital controls with policies generally read as precursors to EMU exit. These moves could include issuing IOUs declared as legal tender, or perhaps imposing a nationwide bank holiday. The euro would fall perhaps as much as 10 cents intra-month (so equivalent to its usual drops during existential crises),†JPM adds.
On the technical outlook, JPM argues that the broader EUR/USD downtrend hasn’t delivered a decisive reversal signal yet
“Only a break above 1.1053/98 (keypivots) would seriously start weakening the trend in favor of a broader recovery to 1.1267/79 (int. 38.2 %) if not to 1.1699 and to 1.1811 (int. 38.2 % on higher scales),†JPM projects.
“Particularly below 1.1053/98, a straight resumption of the downtrend towards 1.0072 and possibly to projected wave 3 Fib.-targets at 0.9652 and at 0.9298 remains highly likely, which would be confirmed via breaks below 1.0660 and below 1.0521 (last lows),†JPM adds.
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