Currency Watch: Greece exit decision day looms

It’s all about Greece at the moment.

Looking at the movements in this week’s markets you’d have been hard-pressed to guess that the Spanish banking system received a bail out of up to €100 billion only a couple of days ago.

Spanish bond yields hit euro-era highs of near 7% while Italy’s also continued on a rapidly increasing path.

The structure of this bailout, or “Spailout” as some people are calling it, has transferred the risk of the banking sector on to the balance sheet of the sovereign. In doing so, it has given with one hand and taken with the other and therefore, the market has remained relatively unimpressed.

It has become clear that the market is looking for one of two things; complete fiscal integration, which we have long argued is the only viable long-term solution to these issues, or a complete disintegration of the Eurozone.

There was further chatter from official quarters about Eurozone bonds although this is yet another plan that the Germans stand against and therefore is a non-starter at the moment.

Issues from Greece were largely quiet yesterday although there have been numerous persistent rumours that capital flight from Greece has stepped up a gear in the past few days from an average of €100m to around five times that.

The world is still in the dark as to the voting intentions of the Greek public, due to the fact that opinion polls are now illegal, although the extremists (Syriza and Golden Dawn) seem to be the ones shouting the loudest at the moment. All will become clear on Sunday.

As a result traders and other market participants have been loath to put on large directional trades before the elections as it has the possibility to be a real bunfight.

A re-run of the previous election, with no clear winner, looks the most likely however, the hold that those parties who are for renegotiating the latest fiscal agreements have over the electorate will be key to how large the selloff could be.