Forex Flash: EUR/USD slated to rise on bearish USD – Goldman Sachs

According to the Economics Research Team at Goldman Sachs, “Our long-term views on the EUR/USD are driven by our structural bearish stance on the USD. The weak balance of payments of the US vs. the stronger BBoP trend for the Euro area still implies a weak USD and a stronger EUR.”

Following the announcement of the ECB’s OMT program in September, there has been a strong rally in the EUR due to a perceived reduction in Euro area tail risk. “Despite this rally, many investors have substantially reduced EUR exposure during the crisis, including central banks and further normalization could push EUR/USD higher.” notes the team.

While downside risk remains in the Euro area due to policy implementation risk and growth underperformance linked to front-loaded fiscal tightening, in the longer run – and after more 'muddling through' – “we expect gradual progress with deeper integration in the Euro area, which should ultimately boost the EUR.” they add.