TRY among worst casualties of Greece's surprise referendum call

Monday, June 29, 2015

After an incredibly choppy start to the European session, eurozone markets found some semblance of stability as the initial surprise of a Greek referendum faded. Benchmark indices were trading sharply lower from Friday’s close as investors responded to the increasingly likely possibility of a Greek default and subsequent ejection from the eurozone with a mass exodus from risk assets. It seems that the optimism of the previous week as indices across Europe rallied higher on hopes of a deal, a rally which we very much viewed as immature, quickly gave way to panic selling with the outcome to the months of negotiations and frequent missed deadlines no clearer.

The Turkish lira was another casualty of today’s flight to safety as the currency immediately opened 1.7% weaker against the USD and traded towards 2.7127 against the dollar early on. 30 day historical volatility in the lira spiked to a ten week high earlier this month as investors in the currency reacted to the verbal sparring match between Athens and eurozone officials. After easing off during the previous week as investors were hopeful of a deal being reached over the weekend, volatility in the lira seems to be back on its way up as contagion fears put pressure on the currency. At the time of writing the lira had recovered some of its early losses against the dollar, trading just below 2.6900. However, as the AK Party struggle to form a coalition government we could see the TRY lose further ground against the dollar, adding to the 15.7% declines so far this year. 

The dollar posted significant gains against a basket of major currencies with the dollar index opening substantially higher as it traded above 96.350 against a basket of major currencies. However, the hysteria that dominated morning trading quickly calmed itself and we’ve seen the dollar index give up these gains throughout the day, trading towards 95.400 at the time of writing as a notable recovery in the euro limits the greenback’s upside potential. The single currency traded within a broad range today and after swinging towards 1.0950 against the dollar early on, the currency has experienced a remarkable turnaround, trading up a percentage point on the day as it targets the 50 day MA towards 1.1150. We have long considered that the risks associated with a Greek exit from the eurozone have been for the most part priced in by the majority of investors but over the coming months we expect downward pressure to dominate EUR/USD trading activity as the ECB’s ongoing QE programme ensure the printing presses are working overtime.      

TRY volatility up on Greek fears

TRY Curncy Turkish Lira Spot 2015 06 29 15 25 16

DXY gives back early gains but haven demand still firm

DXY Curncy DOLLAR INDEX SPOT 2015 06 29 15 08 14

Topics: ECB, EUR, DXY, TRY
More from: Kash Kamal