"This week's jump in the Euro on news of the Greek referendum made no sense to us. As always, there are competing ex post explanations for what happened, but we see two things at play," GS argues.
"First, the market treated developments in Greece as a
negative global growth shock, with rates markets pricing out hikes in
those places seen as closest to lift-off. That penalized the US and the
UK most of all and pushed rate differentials in favor of the Euro. We
fail to see how mounting tensions around Greece do anything other than
reinforce US outperformance over the Euro zone, i.e., we see this price action as a fade," GS clarifies.
"Second, after years of cliff-hangers, the market
continues to expect a deal at the last minute, including in the
aftermath of the referendum announcement. As
a result, few are willing to put on Euro downside, even as the odds of a
deflationary shock to the Euro zone are rising," GS adds.
"We continue to see mounting tensions over Greece as a
catalyst for EUR/$ to go near parity, if contagion to other peripherals
causes the ECB to accelerate QE," GS concludes.
"We continue to forecast EUR/$ at 0.95 in 12 months," GS projects.
