© Ulrich Leuchtmann
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Following the recent news coming from Greece, how would you evaluate the current performance of EUR/USD?
It was surprisingly discouraging that EUR/USD did not react more positively on the Greek elections results. Certainly there main reason for this is the remaining risk of a coalition government formation. Nevertheless, the market reaction yesterday morning, especially yesterday afternoon, was quite disappointing.
Where do you see this pair heading in the short and long term?
Due to the fact that Eurozone crisis, whatever happens to Greece, is going into a new round, I expect that we will see some pressure on EUR/USD, maybe leading it to the lower 1.20ies area. However, I anticipate that we will get some policy response, which might trigger the recovery to the levels we are seeing currently—perhaps to the mid 1.20's or upper 1.20's range. In the long run I expect a downward trend in EUR/USD.
What will be the main drivers for EUR/USD performance?
On the European side these are certainly any measures of the ECB, especially QE measures; whether the officials are going to conduct another round of LTRO; whether they are going to ease collateral rules again—everything that is determining the pace of expansionary monetary policy. In addition to that, the discussions about Eurozone bonds will be of a profound interest, because the more the Eurozone bonds increase, the less Bunds are likely to retain their safe-haven status, the more the crisis will have influence on EUR/USD.
On the US side the main driver is definitely the QE3 risk.
With pro-bailout party's victory on the Greek elections, do you believe that the possibility of Greek exit from the Eurozone is completely eliminated?
If they get a coalition between New Democracy and Pasok, I do not think that we will see an immediate exit of Greece from Eurozone. So far if we assume that they are able to form a coalition government among these parties, I do not think that there is any significant exit risk in the short run. In the long term, let's say in the course of the next two years, things completely look different. I do not think that they would be able to fulfill the conditions in the long run. Therefore, we will have new discussions about Greece leaving Eurozone in the medium to the long term.