LONDON Any euro bounce against the dollar exchange rate in the wake of Sunday's Greek election might be limited with investors and reserve managers ready to sell into a rally.
The harsh reality may be that investors, including reserve managers, take the view that a long, hard road for the euro zone still lies ahead.
In some ways, the euro looks like a one-way bet as far as the election is concerned. A win for anti-bailout parties would hit the euro, as would more of the uncertainty that has hung over markets since the first, inconclusive, vote in May.
A clear victory for pro-bailout parties might give a kneejerk lift to the euro but the signs are it might not last.
FX traders, like many investors, have trimmed their bets or pulled their offers to sell euros ahead of the cliffhanger election, but the apparent paucity of physical sell orders noted by many in the markets should not be taken as any sign of actual confidence in the common currency.
Latent selling interest is already rumored between $1.2680 and $1.2780 but there are good reasons to keep this under wraps until the Greek result comes out.
As no one can know where the pair may open in Asia on Monday morning, leaving sell orders in euro/dollar at specific levels on Friday carries too high an opportunity cost risk.
Put simply, if anyone left an order to sell euros at $1.2680 on Friday and a squeeze higher enabled the order to be executed in the New York market, it would not look too good if the pair then gapped higher to open at $1.28 in Asia on Monday.
That would mean a potential 120 pips of extra benefit had been missed, which, for example, on a 10 million euro trade, equates to a $120,000 difference. Not to be sniffed at.
If the order was filled at $1.2680 in New York and euro/dollar subsequently gapped lower in Asia, then it would have been a great sell, but it's literally a toss of the coin.
The more rational approach being taken by many investors is to ensure they are awake for a very early opening in Asia on Monday so they can evaluate the situation.
If the euro does experience a relief rally, investors and reserve managers who wish to do so, can sell into it and maximize the value of their selling points.
If the euro opens lower, they can choose whether to chase it, depending on their reading of the situation and their need.
The need to sell might be less pressing for the reserve managers, given the relative depth of their pockets.
So a lack of firm sell orders ahead of the weekend might be generating a false picture.
The bottom line could be that whatever happens on Sunday, there proves to be a lot of natural sellers of euros when Asia opens very early on Monday - sellers who would be more than happy to offload the single currency into any bounce.
(Neal Kimberley is an FX market analyst for Reuters. The opinions expressed are his own)
(Editing by Nigel Stephenson)