July 6, 2015 / 11:24 AM / in 2 years

FOREX-Euro holds ground in face of Greek 'No'

(Updates prices, adds more comment)

* Euro losses limited after initial dip below $1.10

* Yen broadly firmer on flight to safety

* Talk of intervention to prevent Swiss franc surge

By Patrick Graham

LONDON, July 6 (Reuters) - Foreign exchange markets reserved judgement on Greece’s place in the euro and the overall solidity of the common currency project on Monday, prodding the euro just over half a cent lower after Greeks voted ‘No’ to further austerity.

The euro had sunk below $1.10 in initial trade in Asia after a vote that a number of major banks said made a ‘Grexit’ the most likely option to end months of crisis and a cash crunch that has seen Greece’s banks almost completely closed for a week.

But the common currency bounced quickly and in Europe was down 0.6 percent at $1.1035, given some help by the resignation of Greek Finance Minister Yanis Varoufakis and holding well inside a range it has kept since the end of April.

That was similar to how the currency traded last Monday after the collapse of talks between euro zone leaders and Athens and reflected the uncertainty of many forex players about how much damage a Greek departure would actually do to the euro.

Some said they still saw the odds as very balanced on whether the two sides could come to a deal to avert that anyway.

“To me its all down to how (German Chancellor Angela) Merkel wants to play her hand. Varoufakis’ departure tends to suggest softer negotiations,” said Richard Benson, Co-Head of portfolio investments with currency fund managers Millennium Global in London.

Like a number of others, he noted that the outlook for the European economy was probably worsened by the uncertainty generated by the Greek crisis and that was likely to put more downward pressure on euro zone interest rates.

“The euro is coming back following the initial post-referendum drop, but this belies vulnerability in days ahead,” said Josh O‘Byrne, a London-based strategist with the FX market’s largest banking player, Citi.

Another effect of an easier monetary policy outlook is to draw investors into core European government debt including German Bunds and some pointed to that as a short-term positive for the euro.

“For all the worry about Greece and the future of the euro zone, that is leading people to buy core European assets as a safe haven and that, ironically you might say, supports the euro,” said Jane Foley, a strategist with Rabobank in London.

SWISS INTERVENTION?

The Swiss franc, normally a natural recipient of funds in search of a safe haven from the euro zone’s troubles, was flat against the euro. That prompted talk among dealers of renewed intervention by the Swiss National Bank.

The SNB, which confirmed last week it had been intervening to weaken the franc, as per its normal procedure declined to comment on Monday’s speculation.

The euro skidded to a six-week low of 133.700 yen early in the Asian session, from 136.185 late on Friday, before rebounding to 135.45, down 0.5 percent.

“This is going to be extremely messy, most divorces are,” said Stephen Jen, a partner at macroeconomics-focussed hedge fund SLJ Macro Partners, said.

“But if you plot Iceland and Ireland on a GDP chart over the past few years, you can’t distinguish them. When we think about Greece, we do need to keep in mind that there are different paths to recovery.” (Editing by Toby Chopra)

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