Maybank FX Insight: EURASEAN - Upside Potential - 22 May 2015

EUR/ASEAN:  Upside Potential

        Greece is now facing a bigger round of crunch time in Jun-Jul. It does not have sufficient funds to meet its debt repayment obligation and is urgently in need to secure the disbursement of the remaining EUR7.2bn of its bailout program. But this has hit a roadblock as ongoing negotiations between Greece and the institutions (IMF, ECB, EU) has yet to find common ground and time is running out.

        Our base case remains that Greece will salvage a deal at the eleventh hour and prevent an exit or default scenario. It is likely that there could be some agreement to restructure its debt either in the form of a partial write-off or easing the burden of debt repayment and at the same time, compromise on implementing some of the austerity measures. Furthermore Greece debt repayment obligation will start to ease after hitting its peak in Jul. If Greece manages to survive this period, stress may ease into 3Q.

         Worries over a Grexit could drive up FX volatility and push the EURUSD, EUR/ASEAN lower but we believe this is likely to be short-lived as medium-term factors such as current account surplus, BBoP surplus and steady portfolio inflows could help the EUR regain strength over time.