The Greek financial crisis had taken a sharp turn for the worse this weekend, leading to fears of an imminent collapse in Greek liquidity, a run on the Greek banking system, a sharp fall in the Euro, and the possible eventual exit of Greece from the common currency. This situation had led to expectations that Forex brokers will lower available leverage when the markets open for the week in a few hours, or even prevent clients from opening any new trades at all, going into “close only” mode.
This grim picture was confirmed a matter of minutes ago, as the European Central Bank announced it would not extend the funding of Greek banks beyond the levels agreed on as of last Friday (the “ELA”), according to the BBC.
Without any emergency mechanism to ensure that the Greek banks are able to provide liquidity to the Greek public, it now seems that the Greek government has no choice but to keep Greek banks closed tomorrow, and begin imposing capital controls – either that, or back down on their position regarding a deal.
Needless to say, there is still room for a last-gasp rescue, and it seems that Greece and the ECB are each upping the ante and daring the other side to blink first. Neither side believes that the other side will allow the conditions for a Greek exit from the Euro to emerge. However, it may be that both sides have seriously miscalculated, and a Greek exit from the Euro will now become highly probable.
In terms of what this means for the market, if the current situation stays the same, we can expect the Euro to open severely lower tonight and continue to fall sharply. Where it might find a bottom is anybody’s guess. We can also expect strong turbulence in European bonds and a sharp fall in European and possibly global equities.
Two brokerages – FxPro and Mayzus - have sent out a communication warning of increased margin requirements and a possible ban on opening any new trades, depending upon prevailing conditions when the market opens tonight.
Finally, the ECB is waiting for some kind of Greek surrender, and if Greece is prepared to move closer towards the Eurogroup’s position tonight, all this turbulence might still be avoided, with the liquidity tap turning back on.
