Greek Referendum Could Be a Gamechanger

Greek Prime Minister Papandreou had a Halloween surprise for markets on Monday as he announced a referendum on the EU bailout deal. The move was completely unexpected and could throw Greece (and Europe) into chaos. The euro dropped almost 100 pips as the news hit.

The Greek public will decide whether or not to accept the troika bailout terms. It seems almost a certainty that voters will reject the deeply unpopular austerity measures, a move that would force an early election.

The referendum is slated for January and the only hope seems to be a constitutional clause that says referendums can only be held on matters of great national importance. Some are saying the current situation doesn’t apply, as hard as that is to believe.

Another hope is that Papandreou will not last long enough for a referendum, he may be defeated in a confidence vote on Nov. 2-4.

The current thinking is that Papandreou wants out or that he wants to share the responsibility of the failure of the state with the public. Bondholders who accepted a haircut only two days ago may already be having second thoughts.

Turning to the forex market, the news today highlights the endless uncertainty that will plague Europe for years to come. The euro was absolutely crushed today, falling to 1.3848 from the close on Friday at 1.4146.

The reversal back below the 55, 100 and 200-day moving averages and the close below these levels at the end of the month suggests the rally was a false breakout. Knowing that the market was positioned heavily short (via CFTC COT) it makes perfect sense. Thursday’s rally was nothing more than a massive short squeeze.

I expect a half-hearted rebound in the next day or two and I will be looking to sell it.

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