Euro 2014 - The Mother of all Crisis?

No, this isn't about an unannounced Eurocup, but to do with more significant matters, namely the economy. In the chart below, I notice that there is a possibility of the Euro to hit $1.40 and there are worrying reasons behind this. While it might provide a good trading opportunity for the average speculator, the concerns that rise from this chart is quite worrisome.

EURUSD - 2014 Forecast

For starters, if the current economic conditions prevail, we might soon start to experience stagflation.
The underlying economy continues to stagnate while inflation rises, reflected by the potential rally in the Euro. Here are some key points (... to lose sleep over)

• Draghi, unlike most of his counterparts hasn't yet embarked on an aggressive dovish policy. The recent ECB conference in July saw some 'forward guidance' but it seems to have come after a lot of push and shove.
• The ECB chief continues to talk about 'negative interest rates' but its only left to be seen.
• The 'whatever-it-takes' from the previous ECB conference (honestly, lost track of when it was) seems to be only words and no actions.
• Recent rhetoric from the Eurozone bloc voices the fact that the ECB is prepared to keep interest rates low for prolonged period of time. But I doubt if Interest Rates alone can be relied upon when it comes to improving the state of the economy... especially when there are a lot more countries involved.
• September is an important month for the Eurozone, with the German elections. All will be well if the incumbent, Ms. Merkel is elected to power... but what if? 
• The 'what-if' is something that cannot be ignored. Recent economic data shows that even a behemoth like Germany is being dragged down with the rest of Europe. Italy/Spain/France... the less mentioned the better.

So what happens should the Euro hit $1.4?

Well, for starters, it would be quite difficult (to say the least) for exporters in the Eurozone to make a profit. Higher currency would translate to bigger costs for manufacturing and production thus making the goods less competitive in the international markets... Current economic conditions would push the Eurozone against the wall (so to speak). Higher currency rate v/s low interest rate isn't attractive to the investor even for the purpose of carry trade.. so we can expect to see a deficit in the current account as well.

ECB's Interest Rate Tool

If we look at interest rates, the ECB's mandate is currently to keep the interest rates at 0.5%. Sure, there is room for another 25 bps.. but will it be too little too less? And even if interest rates are dropped to 'zero' would it help the economy in anyway? It would in turn only push inflation even higher. Printing money, or quantitative easing won't help in anyway either.

For most part, I wish I was right, but this is one of those moments when I wish I am proved wrong!