The chart below is the perfect summary of the dilemma facing traders and investors: that primary marginal risk setter, the EURUSD (recall the all time record correlation between the 250x levered EURUSD and the ES), is trading inbetween the Italian-Bund spread, which following the massive ECB intervention in the past two days, is largely "fake" and thus irrelevant for price discovery purposes, and the French-Bund spread which is ineligible for ECB intervention as noted yesterday, and hence presents the real risk perspective in Europe. Naturally, with optimism and a bullish bias (bonds are closed today so momos and robots are in charge) ruling the day, the EURUSD is well bid toward the "fake" side of the spectrum. However, unless the key question at the heart of the European dilemma, the math of the Italian bailout is answered, expect the French spreads to continue slipping ever wider, and the EURUSD to eventually catch up once this latest bout of optimism expires. That is, unless of course, Sarko tips his hand and demands an ECB bailout, an action which will unleash the endgame as vigilantes put France in rearview mirror and head, from every possible direction, right for Frankfurt and the German spread (with itself) directly.
Chart via Bloomberg, h/t David