Given the intricacies of the European decision making process, with seventeen EMU member states and two - not necessarily aligned - federal institutions, the ECB and the European Commission, it may take an "exogenous shock" to get things going. We think the IMF played this role in the last few weeks. Indeed, Christine Lagarde's first major speech at Jackson Hole on 28 August, with its focus on bank recapitalisation, despite the criticism it drew, may have written the blueprint for an acceleration in the resolution process of European sovereign crisis.

Lagarde's statement was quite straightforward: "[European] banks need urgent recapitalization. They must be strong enough to withstand the risks of sovereigns and weak growth. This is key to cutting the chains of contagion. If it is not addressed, we could easily see the further spread of economic weakness to core countries, or even a debilitating liquidity crisis. The most efficient solution would be mandatory substantial recapitalization- seeking private resources first, but using public funds if necessary. One option would be to mobilize EFSF or other European-wide funding to recapitalize banks directly, which would avoid placing even greater burdens on vulnerable sovereigns".

Eoin Treacy's view Greece has enough money to take it through until November. That means that a relatively holistic solution will have to be proposed to the Eurozone's crisis before then. The various governments will, at a minimum, have to commit additional capital to their respective banking sectors. How the EU-IMF-ECB troika decide to deal with Greece is still an unknown. They will want evidence that Greece is doing everything possible to correct its competitive disadvantage with the rest of the Union. This could still entail a restructuring of debt. The continued strength of Greek yields suggests this is the most likely scenario. The question now is to what extent a Greek default has already been priced in to other assets?

Sentiment towards the banking sector remains grim. The Euro STOXX Banks Index more than halved since February but has at least stabilised since early September. It pushed back above the psychological 100 level two weeks ago and posted a higher reaction low last week. A sustained move below 97 would now be required to indicate a resumption of selling pressure and to check current scope for some additional upside.

The Euro Stoxx Index of the 312 largest Eurozone companies has stabilised near 200 and posted its first higher high, since June, on Friday. A sustained move below 200 would now be required to question current scope for some additional upside. The bounce has been more emphatic for the Euro Stoxx 50 Index.

The US Dollar Index continues to unwind its short-term overbought condition suggesting deleveraging has at least paused. This has been the largest decline since July and it will need to hold above 77 if the short-term advance is to remain relatively consistent. The Dollar has also declined against the Canadian and Australian Dollars. The latter has rallied back towards the $1 area which is the first point of potential resistance. The Australian Dollar will need to sustain a move above that level to begin to suggest demand is returning beyond the short term.

It will take time before an all clear can be sounded for the European markets. The short-term oversold condition that has been evident on so many of the region's equities is being unwound. They will need to continue to hold above the recent lows on a pull back, exceed their recent short-term peaks on the next rally and eventually hold moves above their respective 200-day MAs to confirm a return to medium-term demand dominance. Let's take it one step at a time.