Talking Points:
• There are many market series that we can theoretically use to gauge sentiment surrounding Greece
• Many of the measures that seem most comprehensive - the Euro, Greece CDS - have fatal flaws
• Perhaps the best barometer for day-to-day sentiment updates on this tension are Greek banking shares
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Shouldn't the Euro offer a good and direct reflection of the day-to-day shifts in sentiment surrounding Greece's financial crisis? One of the most liquid instruments in the world and tapped directly into the stability of the Eurozone, it would seem a great measure. However, it has proven distinctly disconnected from the consensus in headlines and trading circles. With so much back and forth, speculators are increasingly discouraged from taking new positions - long or short. That reduces the currency's responsiveness to new developments that are not definitive directions. There are similar issues that arise in implied volatility, Greek credit default swaps (CDS), government bond yields and broader Euro-area assets. So, where can we look to gauge where the frontline of sentiment lies between the extremes of a full-blown crisis and complete recovery? Greek shares and particularly banking stocks may offer that finely tuned measure. We discuss this in today's Strategy Video.
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