Euro won't wither, just don't expect it to bloom

Steven Englander, Director and Global Head of G10 Strategy for Citigroup, speaks at the Reuters Investment Outlook Summit in New York June 8, 2010.

NEW YORK (Reuters) - The euro is unlikely to rise significantly from its current levels near four-year lows, according to some top investment strategists, and some even see the currency falling to parity against the U.S. dollar.

Strategists speaking at the Reuters Investment Outlook Summit in New York this week offered a wide range of opinions, with some saying parity against the dollar is not out of the question in the next one to three years.

The austerity measures accompanying the European Union and the International Monetary Fund's joint $1 trillion bailout package for Europe's sovereign debt crisis is expected to limit economic growth and the euro's prospects.

What started as a Greek sovereign debt problem, has spread to hover over Spain, pulling selling pressure on the currency of the 16-member euro zone. The euro fell below $1.19 for the first time in more than four years on June 7. The currency is down 15.45 percent year-to-date, having bounced off the lows to trade around $1.21 on Thursday.

Steven Englander, Citigroup's global head of currency strategy, said he expects the euro to fall further in the next one to three months before settling into a $1.10-$1.15 range.

The "worst-case scenario for us is for the euro to hit parity against the dollar," he said.

"Over the next one to three months we expect the euro to continue to trade lower," Englander said. But in the long run, "I think time is on the side of the euro," provided indebted euro zone countries stick to austerity budgets.

And noted market analyst Barry Ritholtz, director of equity research at Fusion IQ, said the road ahead isn't going to be pretty for the euro.

"The euro is going to have problems for a long time. People are talking about $1.15? I could see parity," he said, adding that will be a long process that he does not expect to happen, at least, by year end.

Longtime market analyst Robert Prechter, president of research company Elliott Wave International, said the bearish sentiment against the euro has is so high that the currency is due for a bounce higher before drifting back down again.

"We think we are getting very close to the peak of the first major move up on the dollar and the first major move down in the euro," Prechter said. "So we are probably within a week or two of the end of the decline in the euro against the dollar, at least for a few months."

Longer-term, however, Prechter remains bullish on the U.S. dollar, saying later this year the dollar is likely to start making advances on the euro.

One counterbalance to the scenario for low economic growth in Europe is that the weaker euro will make exports from the euro zone more competitive, especially from Germany.

Abby Joseph Cohen, Goldman Sachs's senior U.S. investment strategist, said the euro "is about where it should be" for now given the crisis, as she cited her firm's stance on the currency.

The euro zone faces its toughest test to date from the rolling sovereign debt crisis, but there is "sufficient political determination" to ensure it survives, Cohen said.

POSSIBLE PARITY

Concerns are rising about the fragility of the euro zone, but strategists said they expect the single currency to survive the current turmoil. Greece, however, needs to restructure its debt as a way of releasing some of the building repayment pressures that have only been postponed by the bailout, some said.

"We are assigning a higher and higher probability to a break-up of the euro zone," said Gina Sanchez, director of equity and asset allocation strategy at Roubini Global Economics.

"I don't want to overstate that," she said. "It is not our base case, which is they muddle through."

However, the firm, founded by Nouriel Roubini, who famously predicted the U.S. housing crisis, said the chances of a euro zone break-up have grown from a low probability of about 15 percent. Roubini has said Greece needs to restructure its debt.

Veteran Morgan Stanley bond analyst Greg Peters also cited the need for Greece to attack its problems.

"There's really no quick solution," Peters, Morgan Stanley's global head of fixed income and economic research, said. The European crisis "will not slow down or abate until Greece is forced to restructure."

Fitch Ratings sovereign ratings head, David Riley, told the summit he sees a "very low probability" of a break-up of the euro zone, even if Greece were to restructure its debt. The euro zone has no legal mechanism to expel members and members have no legal rights to leave, he said.

David Beers, head of sovereign ratings at Standard & Poor's, said S&P does not consider that a Greek debt default in the near term and a breakup of the euro zone are inevitable.

(Additional reporting by Steven C. Johnson, John Parry, Ros Krasny, Herbert Lash and Dena Aubin; Editing by Leslie Adler)