Avoided the oversold bounce,
shorted EUR/USD June'15 @ 1.1383, low leverage, stop loss order in place.
caught by the (silly) rumors of an imminent deal. I think if anything, what will be formally asked for is a loan extension on terms already unacceptable to EU/Germany (they haven't yet asked for money with no strings attached though...). Using this as an opportunity to double-down; I have some appetite for a loss (I feel somewhat strong in my thinking on this...)
short EUR/USD June '15 @1.1405, medium leverage, will watch closely.
Looks like any deal will come down to the wire, so I should at least pick up gains from an ever-more-nervous market. Upside potential (downside for EUR) coming from: 1) approaching Grexit due to lack of agreement between Greece and Europe; 2) more-hawkish-than-expected FOMC minutes on Thursday; 3) Ukrainian deal going south (seems almost a when, not if).
Near term target of 1.12-1.13ish, depending on circumstances, testing 1.10 if we pass Feb. 28 with no deal, and lower if things in Greece start to unravel. Really, though, this one is going to have to be winged (decision to stay with trade depending on circumstances).
UPDATE: 2/18/15, 2pm: FOMC minutes being interpreted by market as possibly pushing rate hike out until September +. I don't see that language in the minutes, but ok...In addition, the statement was made before January payrolls came out, along with JOLTS data, etc. As long as data proceeds as is, June is still my bet based on what FOMC has been saying for a while. But...the market doesn't see it that way, at least not yet. The trade buffer I had before the minutes (50 pips) is gone, and I would expect another pop of EUR/USD once Greece makes its request tomorrow and/or when eurogroup leaders agree to meet on Friday to try and work something out. I think the market has been lulled to sleep by constant bailouts and doesn't realize that it won't be that simple. If a face-saving way is found, I think it will be after the weekend, and I only put that at 50/50. SYRIZA has not had enough time in power to enjoy its trappings nor become jaded by it, and I think they still intend to fulfill their election promises. They have options even if they don't renew the bailout - including a quasi-blackmail of the U.S. over Ukraine and Russian bases in Greece; bank closures/capital controls/depositor haircuts? Cyprus-style bank rescue - to buy time to negotiate a new aid package with the EU. In the meantime, they may go back to the polls to ask the people which way they want to go.
FOMC minutes interpretation now raises a serious possibility of loss on my part if a deal is hammered out before the end of Monday. I could be looking at a 30-40% loss. For now, I'm going to take that risk.
UPDATE 2/19/15, 9am: The text of
Greece's loan extension proposal indicate that Greece thinks Germany's issues with their positions are rhetorical. It says it will work with the institutions that comprise the troika, but doesn't say troika. It says it will fulfill the conditions of MFAFA (which include following the Memorandum of Understanding) but does not mention committing to the terms of the MoU. It ambiguously (and somewhat duplicitously) mentions it will cooperate with not-troika on measures to "(a) to attain fiscal and financial stability and (b) to enable the Greek government to introduce the substantive, far-reaching reforms that are needed to restore the living standards of millions of Greek citizens through sustainable economic growth, gainful employment and social cohesion." In other words, we'll work with not-troika on the measures that we want to implement, not the ones we don't.
On the one hand, the ambiguous language leaves open the possibility for compromise and a solution. On the other hand, Tsipras and Varoufakis have said repeatedly and as recent as yesterday that they will not simply sign on to an extension of MoU, so unless they are completely full of shit and bluffing, no compromise will come about because Germany does not seem to trust Greece at all. For their part, Germany may compromise on a few token, face-saving parts of the MoU, but unless they are completely full of shit and bluffing, they will require Greece's unambiguous commitment to fiscal targets, reform measures et al. That leaves a gap without a bridge; someone will have to look bad, and I don't see it being Germany (the rest of the Europeans, maybe, but not Germany -- could Germany be pressured by the rest of Europe to bend more??). That means Greece will fold, right? If Tsipras is a rational player, yes. If he believes his own bullshit, then no.
So who is Tsipras? (info below ordered in the order it was found, not in order of importance):
- He "cohabitates" with his "partner" of over 20 years, who encouraged him to join the communist party in college. They are both engineers, she from lower class, he from middle class. She hates shopping and publicity. They lived in rather modest apartment in Athens.
- He idolizes Che Guevara: "Tsipras’s office was adorned with a poster of Ernesto “Che” Guevera." (when running for PM in 2012); "His youngest son’s middle name is Ernesto – a tribute to Che Guevara, one of his idols." (born 2013).
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From FT: "Although close associates say Mr Tsipras remains the same person as the student activist 25 years ago, those who have disagreed with him insist he has changed — becoming more moderate, and less anti-EU — as he has risen to the top."
- In 2012, he ran on a platform of leaving the Euro,
which he now calls a "paranoid plan". "Last time, Tsipras came out swinging against Europe and its currency. This time he is picking his fights, and trying to build alliances across the southern tier of the continent." In 2012, Syriza declined to form a government because their potential partner refused to drop their commitment to the MoU. Syriza has been the main opposition party for 3 years - not new to parliament like Podemos or Beppo Grillo.
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Syriza's chief economist and adviser to Tsipras is John Milos: “I am a Marxist,” he says. “The majority [in Syriza] are.” The article headline is that he believes the humanitarian crisis in Greece to be the most important issue. Interesting comment in the comments section
(1) though.
So Tsipras is/was a Che-loving communist, who seems to have great charisma, vision and patience and is very politically astute. And for a (moderate) communist, seems to be rather pragmatic. He previously campaigned on leaving the Euro if necessary but has since changed to a more politically palatable tone of "no other option but Europe."
I think Germany wants the Greek albatross to be gone once and for all, and to use it as an example to other populist parties of Europe - that is the only way to stem the rising tide of anti-austerity populism (Jan. 7 - leaked statement: Merkel ok with Grexit).
Last night I reviewed all the public quotes made from main players since January 25, along with anonymous leaks and public statements; there is compromise on semantics, but not on substance. Varoufakis said this morning that the request for loan extension was a take-it-or-leave-it proposal. I think Tsipras will do what he said - when the Eurogroup rejects their plan, Greece will ask for Europe's best offer and take it to a referendum. No telling what the results will be or if it will force them to capital controls and drachma (or IOU's) or blackmail US/Europe for aid to negotiate something else, etc., etc. I do think we will pass the weekend without a deal. Not enough pressure is being placed on either side to compromise what seem like positions that no one has any intentions of compromising, at least not yet.
So the interpretation of the minutes (after re-reading, I can see how it can be seen as opening the possibility to delaying rate hikes past June - if nothing else, it raised the odds) has been a setback to my trade, but I should still make money during next week's trembling that is likely to occur when it is apparent that there is no deal. And since No One knows what the next steps are (only conjecture at this point), the market will sell first and ask questions later. As long as this analysis holds, I would target 1.12 by the end of next week. Whether to exit there or hold on is something I'll have to wing.
notes:
(1) "I'm involved with Syriza at a local level and the big problem is that the hardliners - mostly ex-KKE - are unhappy with the wheelings and dealings going on with ex-PASOK members (for example local supremos like mayors and councillors who can see the writing on the wall and want to keep in the game). Syriza are radical only in the name - they are swinging to the centre more and more as they smell the power. And in Greece that can only mean getting into bed with those who are responsible for the endemic nepotism and corruption. This is the tragedy for all the real radicals who want a clean slate."
UPDATE: 2/20/15, 3:30pm: Tentative deal reached, more than I thought today, but actually about the same except everyone was able to call it a deal. A "deal" will be reached when it Greece's Monday proposals are approved by Germany.
Listening to Djisselbloum at the Eurogroup, Greece is being given a change to choose the switch with which it will be whipped, that no legislation will be made without approval. Listening to Varoufakis, Greece's list of reforms submitted on Monday will be their own ideas, and if Europe rejects it, they'll be up shit creek...but of course, he says their is so much goodwill between the sides that they will both agree through the weekend before their proposal is submitted; they will be "co-authors". We'll see about that...
I'm about even on my trade right now, slightly green, so I'll wait and see what the weekend and Monday bring. I may end up taking a 10%-20% loss on this trade.
UPDATE: 2/22/15, 12pm: I don't want to marry my position and have been brainstorming counterarguments to my outlook, and think that at least short-term, it may make sense to cover my short today or tomorrow.
EUR/USD net shorts are near an all-time high (even though levered positions are not), Euro data is coming in better than expected, and Syriza seems to either be 1) bluffing, which they have now backed off from at the last second, or 2) playing the Eurogroup for time, and for fools. Either way, absent a list of ambiguous, inadequate or unpalatable "reforms" to be enacted in the coming months, there seems to be room for a Euro rally. I'll be closely monitoring the Greek proposals and am willing to cover my short position quickly should the Greeks appear to negotiate in good faith with proposals the Germans would be willing to accept. Hopefully any loss will be small to moderate.
