Despite intensifying talk about Greece exiting the euro zone, catastrophic scenarios predicting the dismantling of the entre single currency area are currently not haunting the markets like they did when the debt crisis started, David Bloom, global head of Foreign Exchange Strategy at HSBC, told CNBC.
But volatility in foreign exchange markets is likely to stay high with the Japanese currency, the yen , possibly stepping into the limelight, other analysts believe.
"The kind of Armageddon scenario where the euro won't exist has disappeared from the market. People are talking about Greece leaving but I don't think people are any more talking about the disintegration of the euro and that is a big change compared to a year ago," Bloom told " Worldwide Exchange ."
"If the currency is not going to exist, it shouldn't be at $1.27," he said, referring to the euro's exchange rate versus the U.S. dollar.
Bloom believes markets will get to a point where they will be "paralyzed," because investors will have to wait for the outcome of the snap election in Greece.
Greek politicians failed to form a government after the inconclusive elections on May 6, so another election will take place on June 17, with parties opposing the stringent austerity conditions in the bailout agreements with the European Union and the International Monetary Fund enjoying strong support.
Eimear Daly, an analyst at Schneider Foreign Exchange, said in notes sent to the market that "the real risk of a Greece exit for Europe is not that other nations will be drawn down into a spiral of contagion. It is that they will choose to leave."
"If Greece exits and does what the monetary union has not allowed it to—devalue its currency—it could navigate a successful recovery," Daly added.
Four Grexit Scenarios
While stressing that it is impossible to accurately predict what would happen if Greece does decide to leave the euro zone, Bloom devised four scenarios—from the best scenario for the euro to the worst.
According to those, the best scenario for the single currency would be if, in the event of a Greek exit, there are no sustained contagion effects for the rest of the countries, and the experience is damaging for Greece.
"The net result for the euro would be an insulated periphery, and a clear warning to those contemplating following Greece out of the euro zone that it could be potentially damaging. The market will feel secure the euro is indivisible," Bloom explained.
A scenario where there would be no sustained contagion effects and in which a Greek exit proves to be successful after initial problems would also be good for the euro, as it would show that policymakers are able to limit the ripple effects of the exit, he said.
Bad for the euro would be a case in which the contagion effects are acute and the Greek exit experience is damaging, as this would increase the concern that other countries might follow Greece.
"However, under this scenario, Greece is having a traumatic experience of life outside the euro, and so other countries would be far less inclined to emulate the Greek strategy. Here the euro would fall not only initially but would extend its losses," Bloom noted.
The worst scenario for the euro would be if the effects of the contagion on other countries are acute and the Greek exit strategy provides successful, he added.
"The decision for these peripheral countries to leave could be made easier if they see Greece emerging from the initial trauma of adjustment to enjoy the benefits of a freely floating currency, devaluation, default and an independent central bank," he wrote.
"The threat of euro breakup driven by other countries choosing to leave would be most acute. Here the euro would fall dramatically. However, we think this scenario is very unlikely," Bloom added.
With the Federal Reserve and the Bank of England both printing money in order to boost their economies, investors have been looking at other currencies. One of their favorites is the Japanese yen.
However, some warn against the currency.
"The idea that the yen is a safe haven is about the most unsafe safe haven I've ever heard of. This is a country whose fiscal arithmetic makes Greece look like Switzerland," independent strategist David Roche told CNBC.
But Eisuke Sakakibara, Japan's former vice finance minister, also known as "Mr. Yen," pointed out that while it was true that Japan's government debt was 180 percent of gross domestic product, its household financial assets were about 240 percent of GDP.
"We will not have a financial crisis for another four-five years," Sakakibara told " Worldwide Exchange."
Bloom said the market was likely to try to push the yen higher to test the Japanese authorities' willingness to intervene, as the Swiss central bank did when it believed the Swiss franc's strength was hurting exports.
But Sakakibara said Japanese exporters could survive with a yen hovering around 80 for the dollar and 100 for the euro, and only if it appreciated in the low 70s or 60s against the dollar would it become a problem.
"I don't think it will go down to 72, but it is likely that the yen-dollar rate will go into the 70s and probably will hover around 78, 79 for a while and that wouldn't be a major blow to the Japanese exporting companies," he said.
"Japan is a much bigger country than Switzerland and we cannot do what Switzerland has done," Sakakibara said, adding that intervention was unlikely to take place at the rate of 78-79 to the dollar but only if the yen goes as high as 72.