Strategy Video: Euro and European Markets Increasingly Exposed to Greek Risk
• A Euro-area Finance Ministers meeting Thursday ended with a clear chasm between Greece and its creditors
• Despite the risk, the Euro has held near multi-month highs while implied volatility has dropped
• While 'aware' of risk, the market is not well-prepared for increasingly likely, troubled outcomes
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The headlines, speeches and capital outflow say it all: Greece is an increasingly greater threat to the Euro-area and its currency. And yet, that risk is not accurately reflected in the markets. A 'crisis' outcome is far from certain for Greece and the Euro-area, but its probability is steadily growing while the threat of its severe impact is increasingly clear. Yet, where the appreciation of the situation is there, the market's position does not account for the preparation we would expect for the situation. The Euro is buoyant, implied volatility has actually dropped back, Greek default protection is falling behind the curve. These are signs that positioning and scenarios are not properly aligned. When such disparity arises, opportunity typically accompanies it. We discuss this asymmetry in today's Strategy Video.
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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.