Forex Flash: Euro to decline before recovery in 2013 – Goldman Sachs (Barcelona) - The Goldman Sachs Strategy team have taken a look at EUR/USD´s prospects in 2013 and believe that spot will decline to 1.25 before strengthening to 1.33 and 1.40 over 3,6 and 12 months respectively.

They write, “: Our long-term views 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 imply a weak USD and a stronger EUR.” In the near term, however, they see the signal from he relative Euro area BboP strength attenuated by a range of factors. Following the announcement of the ECB´s OMT programme in September, there has been a strong rally in the EUR due to a perceived reduction in Euro area tail risk.

Short positioning in the EUR remains significant and a further unwind could push it higher. However ongoing implementation risk in the Euro area and growth under performance linked to front-loaded fiscal tightening are likely to be a drag on the EUR, while ongoing uncertainty around the US ‘fiscal cliff’ may lead to less appetite for risky assets and, in turn, USD strength. 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.