17 Feb 2015
ECB bond buying plan serves as a barrier for any Greek contagion – Rabobank
FXStreet (Barcelona) - Jane Foley, Senior Currency Strategist at Rabobank, comments that with yesterday’s eurogroup failing to arrive any agreement for Greek debt, investors have a positive view for a deal to be reached, further explaining that the ECB’s bond buying plan has acted as a barrier to dull any contagion risk from Greece.
Key Quotes
“EUR/USD sank lower as news of the breakdown in the Greek debt talks emerged yesterday. Bonds and stocks have also wobbled. However, European bond yields appear to be shrugging off their early moves and EUR/USD is currently trading off its overnight lows.”
“Even though it is clear that Eurozone politicians are head to head in a high stakes game, it is possible that many investors are taking the view that a deal is still likely. After all throughout the Eurozone crisis, political breakthroughs tended to be made only when tensions were at boiling point.“
“Other investors will have been encouraged by this morning’s news of an improvement in Germany’s ZEW investor confidence survey. In turn this was lifted by last month’s announcement of QE from the ECB.”
“It is certainly the case that the huge bond buying plan of the ECB has dulled contagion risk from Greece for other Eurozone bond markets.”
“That said, the improvement in economic data from countries such as Ireland, Portugal and Spain is evidence that structural reforms have been bearing fruit; Spanish GDP growth registered a 0.7% q/q expansion in Q4, Portuguese GDP grew by 0.5% q/q. These data are themselves being viewed as a firewall against contagion as is the fact that the Eurozone’s banking sector is also now judged to be more robust then a few years ago.”
“As it stands it is the EFSF than carries most exposure to Greek debt. The ECB and the IMF are also significant creditors.“
“While the EUR remains vulnerable on signs of any further delays on an agreement between Greece and its creditors, on our central view downside risk should be limited.”
“We expect EUR/USD to hold close to the EUR/USD 1.14 level on a 1 mth view and fall towards 1.10 on a 12 mth view.”
Key Quotes
“EUR/USD sank lower as news of the breakdown in the Greek debt talks emerged yesterday. Bonds and stocks have also wobbled. However, European bond yields appear to be shrugging off their early moves and EUR/USD is currently trading off its overnight lows.”
“Even though it is clear that Eurozone politicians are head to head in a high stakes game, it is possible that many investors are taking the view that a deal is still likely. After all throughout the Eurozone crisis, political breakthroughs tended to be made only when tensions were at boiling point.“
“Other investors will have been encouraged by this morning’s news of an improvement in Germany’s ZEW investor confidence survey. In turn this was lifted by last month’s announcement of QE from the ECB.”
“It is certainly the case that the huge bond buying plan of the ECB has dulled contagion risk from Greece for other Eurozone bond markets.”
“That said, the improvement in economic data from countries such as Ireland, Portugal and Spain is evidence that structural reforms have been bearing fruit; Spanish GDP growth registered a 0.7% q/q expansion in Q4, Portuguese GDP grew by 0.5% q/q. These data are themselves being viewed as a firewall against contagion as is the fact that the Eurozone’s banking sector is also now judged to be more robust then a few years ago.”
“As it stands it is the EFSF than carries most exposure to Greek debt. The ECB and the IMF are also significant creditors.“
“While the EUR remains vulnerable on signs of any further delays on an agreement between Greece and its creditors, on our central view downside risk should be limited.”
“We expect EUR/USD to hold close to the EUR/USD 1.14 level on a 1 mth view and fall towards 1.10 on a 12 mth view.”