Implied volatility for European equities has climbed to the highest level since 2008 compared with the Standard & Poor's 500 Index, as traders hedge against a potential default by Greece.

The VStoxx Index, which measures the cost of options protecting against Euro Stoxx 50 Index losses, surged 7.5 percent to a 32-month high of 53.55 yesterday. The Chicago Board Options Exchange Volatility Index closed 14.96 points below the gauge, the widest gap since October 2008, when Lehman Brothers Holdings Inc.'s collapse drove both to record highs.

Concern Greece will default on its loans and spur a banking crisis is driving up the price of options relative to contracts in the U.S., where equities are beating their euro-zone counterparts by the widest year-to-date margin since 1987, according to data compiled by Bloomberg. The Euro Stoxx 50 Index has plunged 29 percent in 2011, compared with a 7.6 percent decline for the S&P 500.

"Volatility markets are definitely implying that the U.S. is a safe haven relative to Europe," Nelson Saiers, chief investment officer of Alphabet Management LLC, said in a phone interview yesterday. The New York-based volatility hedge fund manages about $635 million. "People are much more focused on Greece and the potential impact on European banks rather than the U.S., particularly the effects on the French banks."

Eoin Treacy's view Volatility measures offer an additional perspective on where the perception of risk is greatest. The VSTOXX Index hit a new 30-month closing high yesterday which coincided with a number of European indices hitting new correction lows, not least the Dow Jones Euro Stoxx 50 index. The volatility index dipped back into the trading range today, as stock markets steadied somewhat, but a sustained move below 34 would be required to suggest a lowering of the Euro Stoxx 50's risk premium.

The Euro Stoxx 50 broke downwards from the short-term range yesterday. A retest of the 2009 low near 1800 is becoming increasingly likely and a sustained move back above 2200 would be required to begin to question potential for additional downside.

Against the background of continued uncertainty surrounding the Eurozone's most indebted nations, the US Dollar has attracted a growing number of bullish adherents. The Dollar Index broke above its 200-day MA last week and a sustained move back below 76 would be required to question potential for some additional upside.

Here is a link to a snapshot of Bloomberg's World Equity Indices table. The column on the far right represents the year-to-date performance of the various indices rebased to US Dollars. The Dow Jones has posted the smallest decline this year particularly compared to Eurozone indices. If the Dollar's advance persists, it will help inflate US equity returns relative to global markets particularly for Euro denominated investors.

At some point, the strength of the US Dollar could become a headwind for US equities on competitiveness grounds. However, the US Dollar is rallying from a reasonably depressed area suggesting that such concerns are more of the medium-term variety rather than short-term considerations.