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Risk of ‘Grexit’

June 28, 2015

Against market expectation, the countdown has started. ECB will be freezing emergency loans to Greek Banks at Friday closing levels to halt further flight of capital by applying capital control. Or else savers would withdraw amounts in billions. Hence, like Cyprus, the country is most likely to close its banking activity on Monday. But such a move would risks for increased volatility.

Contagion fear is on sudden rise after Greek PM Tsipras called for snap referendum on austerity demand from its foreign lenders. To cool down possible impact of unrest in the financial market on its 1st working day.

IMF’s Lagarde has once again said today that it is still open for talks with Greece to resolve debt crisis. IMF is of view that if Greece agrees to its structural reform proposal and agrees to its austerity demand then it can pave way to reach an agreement. But the proposal is not acceptable.

During last week, market has been witnessing soaring Greek bond yield, with stable Italian, Spanish and Portugal yield. At market opening, conditions will be dicey and bond holders in Europe will show sign of nervousness.

However, ECB still has a role to play and to easy condition, it may have to use its monetary tool. Next two days will be crucial, as EURO will remain in bearish mode, as likely default could further aggravate conditions in Euro-zone. Likely beneficiary will be Gold, Swiss Franc, Japanese Yen and US Bonds.

A nod in referendum would cool down market sentiments and some stability could be seen in near term.


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