No Greek resolution yet but rumors circulating

After the failure of Greece debt talk on Monday, different comments from the politician's & rumors are circulating in the market and being published across the media including Bloomberg, Reuters.

Scrutinizing the merits and demerits of them and the probabilities of the rumors-

a)     Disorderly failure and Grexit- Hard stance from the Germany and Greece. Suggesting such a path and comments from the hard-liners. We believe this is somewhat of lower probability in recent future. We believe this will not be a good news for Germany (will lose lot of money), Greece (will experience utter chaos) and Euro (unknown bearish scenario).

b)    Extended fight to who blinks first- The hard stance maintained and extended beyond the programme expiry on February 28. Will be bearish for the Euro, more for Greek banks, Greek stock market and bonds. Athens stock exchange is currently trading around 850 level and Greece benchmark 10 year yield trading above 10%. Probability medium and associated cost is high from both political and market sentiment point. In such a scenario Euro will be bearish with a higher probability of a bounce back in the news of success.

c)     Extension of the current programme for six months- This is the top circulating rumor and has higher probability. Euro reaction will of less reversing until the final package arrive. This makes overall sense but in this case Greece will ask for a lot better goodies in 6 months. We expect the range bound trade to continue and in such case current range of 1.155-1.127 may broaden.