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The Real Fair Value for the Euro

Betty Davis in 'All About Eve'
Hulton Archive | Getty Images
Betty Davis in 'All About Eve'

The euro has been taking it on the chin lately - and there is more to come, says this strategist.

It's hardly a secret that Europe is in a mess, and with two-year Greek note yields over 70%, it sure seems that investors are bracing for a sovereign default. So why isn't the euro taking more of a beating?

Steven Englander, head of G10 FX strategy at Citigroup , has laid out four possible outcomes for resolution of the debt crisis, from "a truly benign" outcome to a restructuring by Greece that whose impact spreads to other countries. Looking at the probabilities for each scenario and their possible impact on the single currency, Englander says the euro could fall about 6.5%, or nine big figures, from current levels.

"Obviously, every one can use their own scenario analysis," Englander said in a note to clients, "but it would seem to require either a big probability of a Fed venture into QE3-like policies or a very benign euro zone outcome to justify current EUR levels."

Want more grim news for the euro?

The latest CFTC Commitment of Traders report shows that the biggest position held by certain leveraged funds is short euro.

Yep, it sure looks like it's going to be a bumpy night. Or two.

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