EUR: Increasingly vulnerable to Greek political uncertainty

The EUR will become increasingly vulnerable to developments from the Greek political uncertainty in the coming week following the surprise decision by the Greek government to unilaterally end the negotiation process with its international creditors and call a referendum on 5 July regarding the country's bailout program. 

The escalation of political uncertainty in Greece will likely imply a cautious stance from investors, who are instead expected to demonstrate a broad-based flight to quality. Under a risk-off environment, the EUR is expected to come under downward pressure. Beyond the Greek political uncertainty markets are expected to be content to short the EUR based on fundamentals, which strongly support further EURUSD depreciation as respective monetary policy stances diverge.

Other than Greek political developments, which are likely to dominate the price action in the coming week, euro area data and events this week include June EA flash headline and core HICP inflation, final EA manufacturing and services PMIs. 

The ECB June meeting minutes will also be released on Thursday and is likely to reiterate the need for full implementation of the current monetary policy measures. The minutes will also likely reveal the Governing Council's unanimous view that it is appropriate to look through the recent volatility in European fixed income assets and maintain steady monetary policy. The minutes may also reveal whether President Draghi's press-conference view that the market should get used to higher asset price volatility is also held by other members of the Governing Council.