Needless to say, Europe finds itself in a weak economic environment and with elevated/unsustainable levels of sovereign debt.
What solution is there to promote economic growth and diminish the debt burden? ... Printing money.
The ECB is likely to, at some point in the future, follow in the Fed's footsteps and inject liquidity into markets by increasing its balance sheet via large-scale asset purchases. A greater money supply should lead to more lending and more economic growth. More money should also, in theory, lead to inflation, thereby reducing the real value of outstanding debt.
So, if things continue exactly as they are now, the euro will weaken as investors consider the possibility/risk of disorderly defaults and of contagion. If, on the other hand, European policymakers "fix" the problem by printing money, the added supply of euros should further weaken the currency.
What reason is there to be bullish on the euro? Apparently none. Any rallies in the currency are probably due to short covering off news that, most likely, will not change the long-term outlook for Europe and its currency.
And, in my opinion, there isn't room for a contrarian argument to be made. Sure, a vast majority of investors are bearish on the euro, but such views are based on fundamental data which one cannot ignore.
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