1 – 3 Month Outlook of Euro – Less of a dip

Before the current programme extension expires on June 30, Greece needs to pay the IMF a total of EUR 1.6bn (with the first payment due on June 5) and it needs to pay wages and pensions, neither of which it has the money to do. So unless a deal is done in the next three weeks, Greece will default internally, externally, the second bailout will expire and pending funds will be lost. But a deal will be done -and it appears the Greek govt is less keen on a referendum (or snap elections) making it now more likely in our view that any deal will be put directly to Parliament,  vote in Parliament will be positive, bringing an end to this period of maximum uncertainty regarding Greece's EUR membership, assumes RBC Capital Markets.

The other big short-term driver for EUR is price action in European govt bonds, as discussed last month. While Bund yields were at the highs heading into the ECB's June meeting, Draghi purposefully passed up the opportunity to push back on the tightening in financial conditions - the market reacted by taking yields higher still (10y Bund now at 88bps, a 7 month high). 

Balancing Greece and price action in EGBs with lighter short EUR positioning and the expectation for some USD strength as we get closer to a September Fed hike, RBC Capital Markets has increased end-June forecast (1.05 to 1.07) and retain end-Q3 forecast of 1.07 and end-2015 forecast of 1.11. 

Technically, a daily close above resistance at 1.1245 will add to corrective price momentum, exposing 1.1450 and 1.1534 as the next topside/resistance targets to watch. Support at 1.1066 and 1.0870 is expected to attract buying interest while the correction persists, with a close below the recent low at 1.0819 required to nullify the retracement scenario.