Victoria Clarke, Economist at Investec, on EUR/USD, its future trend and catalysts

I do not expect this trend to continue in the long term. Actually, we believe that the Euro will weaken against most of its major counterparts, especially the U.S. Dollar. Effectively, this is due to the fact that the quiet period that we are currently experiencing in terms of the Euro crisis would not last long. After German federal elections in September we will see Greece being a major issue again, and that will ultimately lead to a lack of confidence in the Euro, which we expect to move closer to its fair value, sliding to the1.22 level by the end of the next year.

Yes, I believe it will help to increase investor confidence. However, as we have seen during recent years, broader political events can be the dominant factor in driving the currency up or down. Thus, currently the positive data is helping to boost investors' confidence; however, as soon as talks about a third Greek bailout and possible problems in counties that are trying to exit support programs are resumed, the Euro will most probably weaken.

First of all, the current situation in Greece should be watched closely. It is pretty likely that once talks about a third bailout or possible Greek haircuts start, it is going to have a major influence on the Euro currency. As we have seen many times before, those factors tend to drive the single currency down quite significantly depending on the severity of the scenario. 

Other major drivers would most likely be political, for instance, whether Cyprus will need help from European authorities or a reshaped bailout once again, along with how well Portugal and Ireland manage their exits from their bailouts. All those factors would likely affect the performance of the Euro in the long term.

Our forecast for EUR/USD is around 1.27 for the end of the fourth quarter. However, we see most of that deterioration coming through in 2014. By the end of the next year we expect EUR/USD to reach the 1.22 level.