The upcoming Greek election could determine whether Greece remains in the euro zone. Here's your trading plan.
This Sunday, Greeks head to the ballot boxes to elect a Parliament, after a May 6 vote proved inconclusive and the legislators failed to form a coalition government.
The battle lines are the issues of euro zone membership and the troika’s austerity program.
Greece needs growth and won’t achieve it unless the austerity terms are loosened. The rising leftist party Syriza’s leader Alex Tsipras used the opinion pages of the Financial Times to tell the world of his anti-bailout, but pro-euro platform.
Per Greek election law, political polls cannot be published in the two weeks leading up to an election.
At last print, various polls showed a tight race between the long-standing New Democracy (pro-bailout) and the new radical left Syriza (anti-bailout), each with approximately a quarter of the vote, but effectively tied within margins of error. The other incumbent party, Pasok, is in a relatively distant third.
On May 30, Greek paper Kathimerini reported that 80.9 percent of Greeks want to remain in the euro zone, but nearly just at many, 77.7 percent, want to renegotiate the bailout. Syriza’s platform echoes the public’s interest.
Remember, there are 300 seats in the Greek parliament, and the party with the most votes in the election automatically gets 50 extra seats. So, even a slim margin of victory gives the winning party a mandate.
Here’s the playbook and the trade:
If pro-bailout wins, buy the euro against the dollar
If anti-bailout wins, sell EUR/buy USD
I think pro-bailout wins.
Trade buy EUR/sell USD
The EUR/USD is holding up extraordinarily well considering the level of Spanish bond yields, the potential for a negative Greek election outcome, and German Chancellor Angela Merkel’s comments downplaying any new measures to solve the issues in Europe. Clearly, there is big risk with this trade as the additional prospect of a break in the EUR/CHF 1.20 peg is rising. A break of the peg would drive EUR/USD lower despite a positive outcome in Greece.
Andrew B. BuschDirector, Global Currency and Public Policy Strategist at BMO Capital Markets, a recognized expert on the world financial markets and how these markets are impacted by political events, and a contributor to CNBC's Money in Motion Currency Trading.You can comment on his piece and reach him hereand you can follow him on Twitter at http://twitter.com/abusch .
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