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Europhoria or europhobia: Which camp are you in?

After a surprisingly positive year for the , which outperformed despite the currency bloc's sluggish growth and comparatively dovish central bank, the debate over whether the single currency will be able maintain its allure in 2014 is heating up.

According to Kathy Lien, managing director of FX Strategy at BK Asset Management the odds are stacked against the euro this year.

"The most significant risk for the euro is ECB [European Central Bank] easing. European policymakers have said time and again that they stand ready to do more for growth including dropping interest rates if the economy needs it," Lien wrote in a recent note.

(Read more: Euro has sights on $1.40: Charts)

"If the central bank eases at a time when tapering by the Fed [Federal Reserve] is driving U.S. rates higher, euro-dollar could sell off quickly and aggressively," she said, noting that the ECB could introduce another Long Term Refinancing Program (LTRO), especially if growth slows or inflation fails to rise.

Lien forecasts the euro could fall as low as 1.30 against the U.S. dollar this year, 4.4 percent below current levels. She expects the euro will perform worst against currencies whose central banks are looking to unwind stimulus such as the U.S. dollar and New Zealand dollar or countries that will experience stronger growth like the U.K. and Mexico.

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The euro strengthened 4.3 percent against the greenback last year, supported by the region's current account surplus and increased investment into European assets as risks around a break-up of the currency bloc faded. This compares with modest gains for the dollar index of 0.6 percent over the same period.

Nick Verdi, director, FX Strategy Asia Pacific ex-Japan at Barclays also expects weakness for the currency this year.

"We think euro-dollar will fall this year. The extent to which the euro can deliver gains from hereon in will be less about the removal of risks, and whether the region can deliver economic growth. On that score, it will be lacking versus the likes of the U.S. and the U.K," he told CNBC.

(Read more: Thank Turkey for the euro's spike versus dollar)

Growth in the euro zone is forecast to accelerate to 1.1 percent in 2014, according to the ECB, considerably lagging the 3-plus percent growth expected in the U.S.

However, euro bull Axel Merk, president and chief investment officer of Merk Investments argues the euro can strengthen in spite of weak economic growth.

"There's a misperception that you need economic growth to have a strong euro – (but) because of the current account surplus you can have lackluster growth and a strong euro," he told CNBC, adding that he forecasts the currency will rise to 1.50 against the greenback this year.

Merk adds that while he expects the ECB to unleash another LTRO, it is unlikely to have an impact on the currency.

(Read more: The euro area's naysayers should be more careful)

Finally, he says expectations for U.S. dollar strength in 2014 may be overdone. "Historically, when interest rates go up in the U.S., the dollar does not benefit in the early to mid-phase of the tightening cycle because foreigners are less inclined to buy Treasurys. Its' only in the late phase of a tightening cycle that the dollar is benefiting," he said.

—By CNBC's Ansuya Harjani. Follow her on Twitter: @Ansuya_H


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