Its election time in Greece. I'll start out by saying that so far, the best piece of commentary I have seen was from a Bloomberg video "Here's What Happens If Greece Leaves the Euro." In just over a minute the video quickly surmises the pain that Greece will feel if it returns to the drachma. Its financial system will be paralyzed, inflation rises, and lots of unanswered questions will follow. However, the video ends with the realization that at the end, a devalued drachma could just be what Greece needs to finally turn itself around. Overall, regardless of the election, all paths appear to point to Greece leaving the euro, however it's all a matter of when.
At SwiftTick, we aren't taking a prediction on how the vote materializes. Our view is that in regards to the EURUSD (FXE), the outcome will be negative. If Syriza wins, then they would command a greater bailout to stay in the EU. At that point, it would be in the EU's hands to decide where to go with Greece, and frankly, unlike Spain, Greece doesn't appear to have much leverage at this point. Non Greece banks have been creating contingency plans for a Grexit for months already. As such, the fear of a Greece triggered financial lock has been reduced for the rest of the EU.
If the Pro-Bailout guys win, then we would probably see a pop in the EURUSD as a result. Nonetheless, even if they got the votes to create a coalition the gains could be limited as focus will quickly return towards Spain and Italy. Both of those countries are seeing their Sovereign Debt yields surge higher in the last two days. As such, without the boost of short covering and rumors of central bank liquidity going into the elections, we could easily see selling pressure return next week.
As such, we are looking for a "Sell on the News" play in the EURUSD. Either by shorting on Monday if the EURUSD gaps higher on favorable Greece news or in the event of the pair opening lower, selling it on any rallies.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Additional disclosure: Planning to short the EURUSD on Monday following the election results