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How Probable Are The Chances For A Euro And Greece Divorce?

By Ronald Delegge

Have market participants underestimated the possibility of a divorce between Greece and the euro?

The chart below illustrates the market implied probabilities of a Greek default along with an exit from the euro ("GREXIT") since late 2009. As you can see, up until early 2013, both scenarios moved in virtual lockstep with each other. But not anymore.

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Although the risk of a Greek default seems like a foregone conclusion (+80% implied probability), the risk of GREXIT is less than 20%. Here's what it means: Despite all the political rhetoric, economic threats, and ghostly headlines, Europe and the rest of the world still doesn't see much possibility of Greece leaving the euro.

Over the past eight months, the euro (FXE) has slipped around -16% from the $1.33 range to $1.11. (In July 2014, we alerted readers… Read More …