As the big global banks and investment houses see it, almost every outcome of Greece's stand-off with its creditors leads to a weaker euro. So why isn't the single currency falling?
The simple answer until two weeks ago was that the German 10-year government bond yield had risen in two months from almost nothing to 1 percent and was more correlated with the currency than at any time in the past two years.
That move seems to be largely over, however, and many players are gradually coming to the conclusion that the lack of impact by what seems like an existential threat to the euro zone raises more doubts about the dollar's longer-term rally.
"The number of people who believe any resolution on Greece will be positive for the euro is beginning to eclipse those that view Greece as an ongoing threat," said Todd Elmer, Head of G10 Strategy with the currency world's biggest banking player, Citi, in Singapore.
"The perception among many is that the euro could gain after a knee-jerk dip on a default."
Economists in a Reuters poll taken earlier in June had called for the currency to fall to $1.05 by the end of the year -- some 7 percent below current levels -- and weaken further in 2016. [EUR/POLL]
However, prediction market Hypermind, which has outperformed opinion polls on several big political questions this year, now puts just a 27 percent probability on the dollar reaching parity with the euro in 2015, down from even money a month ago.
A handful of the bigger banks that called for a run to parity with the dollar earlier this year have also pushed out or trimmed such forecasts.
That does not mean the dollar will not strengthen again in the second half of 2015 if the Federal Reserve raises -- or moves closer to raising -- interest rates. But it is making all those who backed it to reach parity feel rather nervous.
"There is at least the possibility that we could find out Greece is leaving the euro (this week)," said Simon Derrick, head of global market research at Bank of New York Mellon in London.
"We all recognize that there will be days of volatility in the market aftermath of that. Yet it does seem, perversely, as if we may need to get the Greek crisis out of the way before the euro can weaken again."
ALL WAYS DOWN
A study by French bank Credit Agricole earlier this month laid out five different resolutions to the Greek crisis.
It said all but one of them -- euro zone leaders drip-feeding Athens enough cash to see it through to the next payment period without a full new deal -- would swiftly drive the euro back to this year's lows of $1.04. Three of the five scenarios pointed to parity with the dollar or below.
"The euro could hit $0.90 in the event of a Grexit," the bank's head of global FX strategy Valentin Marinov said in the presentation, modeling the potential fall on Britain's exit from the Exchange Rate Mechanism in 1992.
Yet as Athens moves closer to the edge ,the single currency at $1.13 on Friday was actually around 7 percent higher than it was two months ago.
Greece's creditors were seeking 11th-hour concessions from Athens at scheduled talks on Monday in Brussels aimed at keeping the country in the euro. The European Commission welcomed new proposals made by Greece's leftist government over the weekend as a "good basis for progress".
Christophe Caspar, Chief Investment Officer with asset manager Russell Investments in London, says that on the one hand, people still struggle to believe Germany will let Greece go. On the other, any impact on the euro has been limited by the absorption of most of Athens' dues by euro zone governments.
"For me Greece is interesting, very interesting, but I have almost no stake in it," he says.
Another idea that has gained some support among City analysts is that central banks from other jurisdictions have begun to buy the euro to weaken their own currencies or rebuild depleted currency reserves, judging that longer-run economics do not justify a weaker single currency.
It is always hard to measure what central bank reserve managers are doing, but data on Friday again made clear that the euro zone will continue to run a monthly current account surplus measured in billions of dollars.
Many economists as a result estimate fair value for the euro at $1.12-$1.15 and the European Central Bank's latest economic projections assume a rate of $1.12 for the next three years.
Add in the relief, potentially, of the departure of one of the euro zone's weakest members and the fall to $1.04 looks more and more like an overshoot.
The "but" in all of this is that whatever Europe's troubles, sooner or later the Fed will raise interest rates, driving the dollar higher.
Research by Deutsche Bank has suggested a Fed funds rate of 2.75 percent versus zero euro zone overnight market rates - now at 0.11 percent - would imply a further 20 cent fall in the euro.
"Clearly, the burden of EUR/USD weakness now lies on the Fed," its global head of G10 FX strategy Alan Ruskin said.
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