"In the short term, EUR/USD movement is likely to be affected by Greek political developments and the bund market.
However, the bund market has been stabilizing recently, while EUR short positions at IMM have already declined meaningfully.
As the Greek situation becomes clearer, the market will refocus on the widening gap of short-end yields between the US and euro area, which have been a more significant driver for the EUR/USD than long-term bund yields.
Even though US economic data has improved in Q2, the rates market prices out a possibility of Fed liftoff in 2015 and 2-5yr US yields have declined over the last few weeks. Upside room for the US short-end of the curve remains high by end-2015, pointing the restart of EUR/USD depreciation into year end. We keep our end-2015 target of EUR/USD at 1.05 for now.
We have been wanting to trade EUR/USD from the short side since 11 June, but were unable to hold a position after the June FOMC meeting following a Dovish Fed and the direction of the pair was made less clear following the Greek government’s surprise decision to hold a referendum.
In the medium term beyond bund selloffs and the Greek political situation, US data and shortterm yields will be again the key factor driving EUR/USD, and downside risks are still bigger than upside risks. We are looking to enter EUR/USD short positions again."