A combination of intervention by the Swiss National Bank, short covering and safe haven pressure on U.S Treasury rates as equity markets around the world fell sharply helped the euro close on its highs in New York despite earlier heavy losses.
Markets around the world reacted to the weekend announcement by Greek Prime Minister Alexis Tsipras that his country would hold a referendum July 5th on the latest European austerity deal after his governmental rejected the terms and ordered Greek banks closed with strict capital controls until then.
The euro opened lower at 1.1034 in Sydney having closed Friday in New York at 1.1167 and traded as low as 1.0955 in Asia.
The Swiss National Bank, anticipating perhaps that a Greek default would likely spark large safe haven flows into the Swiss Franc, intervened in the currency markets selling francs and buying euros. In two waves of purchases the SNB drove the euro/swiss cross from a low of 1.0314 to over 1.0407 and the euro in tandem from around 1.1000 as high at 1.1278.
Thomas Jordan, the head of the Swiss central bank, said that the bank had been involved in the markets, but provide no details. Earlier in the month the bank had said that it would remain active in the currency markets to keep the "significantly overvalued" Swiss Franc down.
Later in the day, Greek officials admitted that, indeed the country will not make its 1.5 billion euro payment to the IMF tomorrow.
The initial push higher by the SNB brought on several bouts of short covering from traders wrong-footed by the bank’s surprise reaction to the prior euro decline.
U.S. Treasury rates weakened thorough out the day with the 10-year bond closing at 2.33 percent down 14 basis point from Friday adding support to the euro’s rise and helping to counter the usual flight to dollar assets typical of market volatility.
Equity market around the world plummeted at the unexpected Greek announcement.
In Japan the Nikkei 225 fell 2.88 percent, 596 points to 21,109.95. The Shanghai Composite lost 3.34 percent to 4,053 bringing its decline to 22 percent since its June 12th high. The Bank of China cuts rates today in an effort to stem the losses on China’s largest exchange.
The German Dax plunged 3.56 percent, 409 point to 11,083. In the United Kingdom the FTSE 100 shed 1.97 percent to 6620.
And in the United States the Dow slipped 350 points, 1.95 percent to 17,596, its lowest close since February 2nd. It is now negative for the year.
The assurance from banking and monetary authorities around the world over the past few weeks that a Greek default would have little contagion effect, now sound a bit more hopeful than they did on Friday.
Chief Market Strategist
WorldWideMarkets Online Trading