Markets around the world are lit up in the wake of the latest developments in Greece.
Investors could maybe have done more to price in the collapse of talks between Greece's leaders and its European creditors, the introduction of capital controls, and the possibility that the country would hold a referendum.
But here we are: US stock futures are selling off sharply and European markets are getting smoked.
In a note on Sunday, UBS strategists explained that among all asset classes they are focused on, currencies are the least straightforward to trade on Monday:
"FX is the trickiest market to forecast and trade in this environment. From a rate-differential perspective, although core (European) yields are likely to fall, (US & UK) Treasury yields should as well, and potentially by similar amounts. So, despite the fact that the shock is emanating from Europe, rate differentials may not move significantly against the euro. This is especially true since markets are pricing a steeper forward path for US interest rates, giving yields more room to fall."
The firm writes that if investors become optimistic about the situation again — as they were at the beginning of last week, and so move on to safer currencies in a 'risk-off' trade — the Swiss Franc will benefit the most.
Among G10 currencies, the Australian and New Zealand dollars are the most susceptible to a sell-off, UBS writes.
In any case, the euro is likely to be hard hit today, which has happened so far. Overnight, the euro dropped against the dollar to a one-month low of around 1.0955.
The strategists advise their clients to prioritize buying German bunds this week, an asset that investors have piled into during the last few hours. The benchmark 10-year bund yield slid as much as 14 basis points to around 0.78%.
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