To many investors, it’s really confusing to see the dollar index dipping on Monday to a low of 95.08 after having reached a high of 96.995 on Friday, which is an astonishing range of 2 percent in only one day.

What sparked such volatility for the world’s major reserve currency?

Monday, Bloomberg reported President Barack Obama had hinted at the G-7 summit in Germany he might be concerned about dollar's strength

Tuesday, the dollar calmed somewhat after Reuters informed: “… The President did not state that the strong dollar was a problem … He made a point that he has made previously, a number of times: that global demand is too weak and that G-7 countries need to use all policy instruments, including fiscal policy as well as structural reforms and monetary policy, to promote growth.”

So, what’s going on?

Taking a somewhat broader approach, it’s a fact longer-dated yield differentials have recently become the dominating driving force (repeatedly in a hectic way) for currency moves. All this becomes interesting when we look simultaneously at the shrinking yield spread between the German bund (10-year) and the 10-year U.S. Treasury.

During the last three months, yield differentials between the German 10-year bund and the 10-year Treasury, when measured on an hourly basis, have shown a correlation of close to 75 percent with the performance of the euro compared to the dollar.

This correlation is once again confirmed after the German 10-year bund just “crossed” the 1 percent yield, which was by the way the first time since September 2014 and “light-years” (in basis points) away of the 0.07 percent yield we saw on April 27 when Bill Gross tweeted: “German 10yr Bunds = The short of a lifetime. Better than the pound in 1993. Only question is Timing / ECB QE.”

Gross called this the “short” of a lifetime, for which he was sublimely right!

In the meantime it's a fact, the German 10-year Bund yields and the euro continue moving together like twins.

The big question now becomes if something really awry with the euro is in the offing?

Maybe part of the rationale for the better performing euro at this moment, and notwithstanding risk of Greece hitting that proverbial concrete wall rising substantially, is it’s also a fact yield differentials of the key southern European nations (Italy, Spain and Portugal) have not widened further out since the beginning of June probably thanks to:

• The stronger than expected inflation numbers for May in the eurozone.
• ECB President Mario Draghi, who said on June 3: “… we should get used to periods of higher volatility…" which was a clear signal to the markets the ECB had no intention whatsoever for taking any additional action to dampen recent volatile moves beyond what it was already doing.

All that said, it is really interesting to see there has, at least so far, been no sign of any “safe” buying of German bunds (higher bund yields = lower prices) notwithstanding further rising uncertainties about Greece.

Maybe, markets consider that even when Greece should be obliged to apply haircuts, after all it will be the eurozone (EZ) institutions, ECB and EFSF, and the EZ member states that will have to take most of the losses on their books. Of course there is also the IMF that has 20 billion euros at stake, and that could turn out not such an easy matter.

All by all, in case there should occur an accident with Greece, EZ sovereign yields should probably go up as prices should go down, which should make EZ sovereign yields more attractive.

In the end, and after the dust of the accident settles, the euro could become somewhat more attractive, at least at first sight but not fundamentally (but that's my personal opinion), after an initial dip. Please read me right, all this is part of a hypothetical GREXIDENT scenario, and we are still not there yet.

No doubt, markets are playing “curious” foreign exchange games.

Of course, it’s anybody’s choice to trust it or not.

From my side, I don’t buy it for the time being as I can't see the U.S. has intentions to manipulate the dollar down.