Goldman Sachs' base case forecasts for the EUR/USD next year is that it will be pushed back towards the upper half of the post-Global Financial Crisis (GFC) trading range, at about 1.40. That, according to GS, puts the EUR/USD at 1.25, 1.33 and 1.40 in 3-, 6- and 12-month respectively.
GS outlines 4 main reasons for this bullish EUR call next year:
1. GS' EUR profile is based largely on the view that USD undervaluation is unlikely without the second most liquid currency in the world, i.e., the EUR also trading overvalued to the USD.
2. GS has taken the view that the trough of the Euro area crisis may have been reached with the announcement of the ECB OMT program, and that over the next year or two the EUR will benefit from a gradual reduction in fiscal risk premia.
3. Short positioning in the EUR, according to GS, remains significant and a further unwind could push EUR/USD higher.
4. GS sees the persistent current account deficit in the US making a stronger USD performance unlikely.
