Daily outlook for EUR: Commerzbank

Quotes from Commerzbank Corporates & Markets:

-EUR: The realisation that life carries on despite the fact that the ECB no longer accepts Greek bonds as collateral for more liquidity started driving up EUR exchange rates intraday yesterday.

After all Greek commercial banks can still acquire liquidity from their national central bank with the help of the Emergency Liquidity Assistance (ELA).

-However, EUR-USD failed at the 1.15 mark. Not even the certainty reached last night changed that: the ECB will allow the Greek central bank to provide its commercial banks with emergency liquidity amounting to EUR 59.5bn. That means that an immediate collapse of the banking system is off the agenda, but the measure is no more than a temporary fix.

-The ELA funds are much more expensive than funds from normal refinancing trades and are likely to aggravate the situation of the Greek banks long term. In particular as the ECB council can freeze the funds any time with a two/thirds majority. As a result volatility in EUR-USD exchange rates is likely to remain high until a longer term solution can be found.

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