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The Chairman of Goldman Sachs Asset Management Jim O’Neill says that the justified  exchange rate of euro dollar should be 1.20. O’Neil  manages $823 billion.    O’Neill says that this is not only the debt crisis that makes him think so.

This man manages quite a lot of money, so maybe we should be listening. O’Neill is famous for coining the term BRIC for Brazil, Russia, India and China.  He was quoted in an  interview on Spain’s  El Economista,

The euro should include a significant risk premium to take into account the current problems. Europe operates by consensus, this leads to the least painful, not the best. In my simple view of the world, regardless of the risk premium, the equilibrium value of 1.20 dollar per euro. The fact that the U.S. is not in good shape affects.

Translation courtesy of Google Translate.

On the other hand, there’s another opinion saying that Bernanke wants a weaker dollar, so you should buy the euro.

If the pain of austerity is good for the EU, the idea of an entire nation descending into anarchy should make the euro the buy of the century. On the other hand if you’re bearish the euro because you believe too much pain is a bad thing, well, that’s cool with Merk. The reason he likes the euro “is because everybody hates it.”

I remain in the camp that sees further downfalls for Europe, and a weaker euro in the long run. But as we all know, there are serious problems on both sides of the Atlantic.

This week, the focus is Jean-Claude Trichet – if he says “strong vigilance” – he hints a rate hike in July and the euro rises. If he repeats “closely monitoring” – no rate hike will be expected  in July, and the euro will fall.

For more on EUR/USD, see the euro to dollar forecast.