Oxford Analytica believes a large depreciation of the Euro is unlikely:
Concerns over euro-area financial stability have previously contributed to large outflows from the monetary union, which have the potential to reduce the value of the euro. The most notable recent event was the 2011 drain in US dollar wholesale funding.
A large fall in the euro would stimulate extra-euro-area exports and the supply chain across the EU which feeds this. To the extent that it would boost wages and prices in the ‘Northern’ euro economies, it would also accelerate the competitiveness adjustment of the euro-area’s indebted economies.
Barring the prospect of a break-up or bifurcation of the euro-area, any panicked sale of the currency is likely to trigger a virtuous cycle for the euro.
To the extent that weakening boosts competitiveness (see INTERNATIONAL: Imbalances fuel euro break-up risk – December 15, 2011), it improves an already admirable balance-of-payments picture (from a currency-demand point of view), which offsets the initial weakening.
A sharp euro depreciation would be unwelcome to some of the euro-area’s key advanced-country trading partners. Particularly aggrieved would be those exporters that compete with Germany in third markets, such as for capital goods and aviation products in the larger emerging markets.
For details, see INTERNATIONAL: Large euro depreciation is unlikely $$