EUR/USD: Goldman Sachs expects 500-pip drop from now until the end of December, including 200-300 pips the day of Thursday's ECB meeting

In an analysis published today, Goldman Sachs explains how the EUR/USD could evolve in light of the ECB meeting to be held on Thursday:

"The context is that the ECB's QE (since its announcement in January) has posted a troubled history, with volatility of long-term Bund yields, the ultimate safe haven in the euro zone. This has been counterproductive with respect to the objectives of QE, which aims to steer investors into riskier assets, which we believe was the main reason for the EUR/USD's test of 1.14 in May.

The meeting this week will be more than just a monetary policy decision. It aims to repair the damage of the summer, with vigour, and we believe that the market underestimates the possibility of a surprise dovish 3 December.

We continue to expect that the EUR/USD will fall to 1.05 by the ECB meeting and then again lose 200-300 pips on the day of the ECB meeting, then slip to parity in late December, and fall further to our 12-month target to 0.95, a target that could be achieved quicker than expected."