"A Greek exit from the euro area likely would take one of two paths: an “accidental”, extended and messy exit where Greece has no choice but to leave (and very likely default) due to deposit flight; or an abrupt, strategic exit that is planned but not signalled a priori.
Both outcomes would precipitate significant EUR depreciation in our view, but the pattern of EUR depreciation likely would be different with important implications for volatility.
An unplanned exit that is effectively forced on Greece by negotiation missteps and deposit flight likely would involve persistent and volatile EUR depreciation punctuated by an accelerated decline once Greece exited. Uncertainty due to lack of forthcoming detail likely would keep the EUR under pressure but allow for volatile retracements on false dawns. The EUR depreciation we would expect on the announcement of an exit, however, may be less than in other cases as it likely would be better priced in. As a result, while average volatility may be high over the period of negotiations, there may be no extreme daily moves in the EUR.
A strategic, planned exit by Greece likely would have very different volatility characteristics. If the Greek government is committed to repudiate its debts and leave the euro area, its post-default, post-exit situation can be improved by a “surprise” exit, likely over a weekend while markets are closed or in conjunction with a declared “bank holiday”. While markets clearly already price a significant probability of a Greek default and exit, if well executed, an exit in this manner likely would shock markets. Hence, average daily volatility leading into the exit may be lower, but an extreme intraday depreciation of the EUR on the first trading day following it would be likely, along with significant downside volatility thereafter."
Nikolaos Sgouropoulos and Marvin Barth - Barclays Capital
