The following are Bank of America Merrill Lynch's atest comprehensive outlook for the EUR including its forecasts, and risks:
Forecasts: it's a matter of time.
We remain Euro bearish, expecting EURUSD at 1.31 by the end of Q1 and 1.25 by the end of 2014. However, we see some upside risks to our projection in the short-term, taking into account how the Euro has traded so far in the year. For the Euro to weaken, we need to see a slowing of equity flows, an ECB signal for further easing to address deflation risks and/or a more sustained improvement in US data. We believe that at least two of these developments will take place in the first half of the year, allowing the Euro to break out from its current range.
Risks: balanced risks:
Upside EUR risks include further weakness in the US labor market, an increase of Eurozone inflation well above 1%, and a decision by central bank reserve managers to increase their share of Euros to pre-crisis levels. Downside Euro risks include a further drop in Eurozone inflation, which would trigger ECB unconventional policies in our view, and inflation in the US if labor force participation continues declining at a fast pace as the economy recovers.
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