Currency markets will be open when Greek election results are announced. Private opinion polls showed that none of the parties would win a parliamentary majority. The centre-right New Democracy party had a three-point lead over the radical left Syriza coalition, but neither party would capture even 30 per cent of the vote. With at least 10% of voters still undecided, either side could be ahead by the end of the day. However, most observers think that neither party will win clear majority, meaning no government. It is unlikely opposing sides would be able to reach compromise, just as after the May 6 election. International leaders encourage Greeks to stay the course of reforms or face uncertain future. Even the French President Francois Hollande, himself not a friend of austerity measures, had a subtle warning for Greece. In a television interview, he said, “If Greeks want to move away from the commitments that were taken and abandon all prospects of revival, then there will be countries in the Euro zone that will want to end the presence of Greece in the Euro zone.”

It is anybody’s guess what will happen in early trading. We know that liquidity will dry out, with market makers quoting currencies in much smaller lots. In addition, spreads could widen considerably, leading to large gaps at the opening. Central banks promised coordinated steps should the outcome of voting in Greece create turmoil in financial markets. This means intervention if authorities see moves as excessive. Also, the ECB President Mario Draghi promised to provide liquidity to all banks with appropriate collateral, if needed. We should recall that last week the EUR-USD opened with a 100 pips gap and today could be even more volatile. I will not even try to guess what markets are going to do – sitting this one out, just watching the action carefully. On an interesting sub note, a survey of 80 managers of central bank reserves and sovereign wealth funds revealed that collectively they expect a breakup of the Euro. Perhaps not entirely, but at least one country will leave the monetary union within the next five years, according to the poll, probably Greece.

Mike K.