EUR/USD: Goldman Sachs thinks pair will fall to 1.05 by end of December

Goldman Sachs describes how new information is incorporated into the price of the EUR/USD.

Last week, GS notes that the EUR/USD has not really dropped more since the ECB meeting.

On 4 September 2014, the ECB surprised markets by lowering the deposit rate while announcing that the ECB's balance sheet would be increased to reach the levels of early 2012. This was a pre-announcement for QE. However, EUR/USD only dropped down by two major levels (from 1.3150 to 1.2950) the same day. Meaning that markets incorporated a drop in deposit rates into the price. It was only thanks to a hawkish FED that the EUR/USD was able to decisively drop through 1.25. It took 3-4 months for the EUR/USD to grind 5 figures lower.

It therefore appears that new information is integrated into the EUR/USD with a certain delay. But we believe that even if the markets will take time to convince themselves of Mario Draghi's message, the EUR/USD should fall to 1.05 by the end of December," says GS.