Eur Short-Term Outlook

Eur Short-Term Outlook


Quotes from RBC Capital Markets:
-EUR was in the bottom three G10 currencies in May (ahead of NZD and SEK) but has turned around in June (lagging NZD, AUD and SEK). Those looking for a fundamental reason to pin early June strength on may struggle. The month kicked off with a weak US payrolls number - which may prompt further Fed easing but likely in smaller size and less supportive for risk appetite than before. This is hardly a reason for EUR to be an outperformer.
-Positioning certainly has something to do with it, as investors reached record shorts at the end of last month andEUR/USD now bounces from technically oversold levels. Spain is edging closer to a bailout with its European counterparts showing willingness to be flexible on the structure (with provisional plans to lend to Spain's bank recap fund - FROB -rather than insisting on an Irish or Greek style programme and the stigma that would bring). But binary political risk still persists in Greece and the election is still too close to call. That could set Greece up for a bruising stand-off with its creditors in the final weeks of June/early weeks of July with the threat of Eurozone exit hanging over discussions.
-There is still nothing concrete in the way of a European roadmap to closer integration and no clarity on how the EU/ECB would try to firewall the remaining member states in the event of an exit. Measures like a deposit guarantee would address one channel of contagion but there is no answer yet for how it would be funded and how all member states would be brought on board. Despite the recent bounce, we are revising down our EUR forecasts to reflect the persistent uncertainty which we think is starting to lead to a more fundamental reassessment of EUR assets.


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