Some very disturbing commentary for the EUR bulls out of Goldman sales desk (these guys are the real deal, not the institutional sell side idiots who can't hit an elephant from 3 feet with a bazooka), which is now outright bearish on the EUR: "We’ve been better EUR sellers to the tune of half a yard, mostly technical accounts. Leveraged accounts are not participating in this move for the most part, and if anything, they have been caught the wrong way around." Which means that should the collapse continue, the margin calls will come in, and the EUR longs will go the other way, putting increasing pressure on the EUR pairs, and likely forcing the SNB to do the inevitable. Look for more EUR pain overnight.
More from Goldman's David Clark:
Yet another reason to have sold EURs today. EURUSD has dropped nearly 2 big figures in the last 24 hours and is closing at the lows. EURCHF makes new all-time lows. EURAUD revisits levels not seen since 1989 – particularly interesting on a day when equities are down 1%. We’ve been better EUR sellers to the tune of half a yard, mostly technical accounts. Leveraged accounts are not participating in this move for the most part, and if anything, they have been caught the wrong way around.
And some observations on deteriorating geopolitics from Goldman's Natacha Valla:
Strike in France, sounds familiar? Estimates vary between 1.1 (interior ministry) and 2.5 to 3 (unions) million for the number of people in the streets today for the first general strike to protest against the proposed pensions reform. In short: (i) Either way, this is a lot and can be considered a success for unions. (ii) Given today’s sizeable turn-up, the government is likely to propose to soften the edges of the reform and get away with it (eg on specific regimes for physically-tough jobs) while keeping the core intact. The President and the PM have already made statements in this direction today. Overall, be braced for more of this in September.
Prospects for French sovereign debt? France currently enjoys a honeymoon with markets – its spread to Germany is minimal (see chart below). Yet, the country’s track record in managing public finances and the shape of long-term government liabilities (see chart below) do not look great. Overall, at the time we speak, we can still give the benefit of the doubt to the current government, as it has said very loud its commitment to turn the situation around. Whether or not this will happen will depend on its ability to keep a firm hand (and/or make wise concessions) through what promises to be a shaky September. A disciplined budget won’t suffice, structural reforms (starting with pensions) will be key.
Recall that our Global Markets team has initiated a couple of trades involving France in the sovereign space (10-yr Italy against France, and Spain vs. France). See Francesco Garzarelli’s latest mails and his Bonds Snapshot of September 6th for more details).
Watch out for developments in France – things might move fast.
A couple of charts:
All in all, the pleasant myth about Europe is unravelling. As Tim Backshall pointed oh so wisely, the choice is simply: default now or default later.