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I think the Euro will remain in a range given that the news of the meeting should have been factored in. We think that expectations from the meeting are that some amount of the 44 billion euros tranche will be released to Greece. Even if the country does not receive the full amount, the amount should be sufficient to cover its deficit in the nearer term and avoid a default. That is the key issue over here. Thus, going into the meeting, I think EUR/USD will remain in a range.
What is your forecast for EUR/USD, EUR/JPY and EUR/GBP for the end of the year? What will determine Euro's performance in the near term?
I think there are two main issues that will determine the Euro's performance in the near term. First, the outcome of the negotiations over the Greek bailout. The second will be further developments in Spain. Clearly, we have the regional elections in Catalonia on November 25, but I think the broader issue will be whether the Spanish government is prepared to ask for help from its European partners, which will then allow the ECB to activate their OMT (Outright Monetary Transactions) programme, the central bank's new bond-buying plan.
Our one-month forecast for EUR/USD is 1.32.
What trend do you anticipate for the Euro next year?
Next year we expect the 17-nation currency to weaken against the U.S. Dollar. We think the structural issues in Europe will remain unclear even if the policy differences are resolved in the short term. Long term implementation issues will remain in Greece as well as in Spain. Moreover, growth has been much weaker in the Euro area.
There is also some concern over the U.S. because of the ‘fiscal cliff', but we expect a modestly positive resolution. The full cliff is not likely to happen, although there will be some fiscal contraction. Nonetheless, the U.S. growth is much stronger and looks to be in a better position. Because of relative monetary policy expectations and the relative growth story we think EUR/USD will weaken. Our twelve-month forecast for EUR/USD 1.22.