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Goldman Formally Lowers EURUSD Target From $1.35 To $1.15; Time To Go Long

Tyler Durden's picture





 

Full blown capitulation from the Goldman FX (strategic not tactical) team: the firm goes from a $1.35 target on EURUSD to $1.15. Score one more golden star for Goldman-Client relations. On the other hand, Thomas Stolper is officially advising clients to sell their euros to Goldman. There is no clearer signal to buy the beaten down currency.

Endogenous Political Risks to EUR/$

We have changed our EUR/$ forecasts to 1.15, 1.15 and 1.25 in 3, 6 and 12 months’ time. Since our previous FX Monthly, relative growth surprises have disappointed relative to our expectations, while market projections for the policy rate differentials between the ECB and Fed rate have moved even further away from our forecast. Fiscal policy announcements in the US and Euro-zone place further pressure on our growth forecasts. Most importantly, the policy risk premium in the EUR has risen again, also reflected in sovereign and CDS spreads, leading to some re-thinking on what drives this process. We now think stretched short EUR positions can persist until currency weakness feeds into notably stronger growth, which then reduces the pressure on Euro-zone governments. In the meantime, the risk of continued political disturbance remains high. Ultimately, however, proof of better growth will ease the endogenous political tensions and this should lead to a reduced EUR risk premium. Beyond the EUR outlook, we scan our currency universe for opportunities linked to the monetary policy and fiscal policy outlook, valuation and cyclical momentum. We find most opportunities in faster-growing peripheral currencies funded in G3.

And here is where Jim O'Neill's N-11 (which counts Iran among its members) comes into play: buy the Iranian Rial.

 


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Wed, 06/09/2010 - 17:21 | Link to Comment ghostfaceinvestah
ghostfaceinvestah's picture

This is one time when GS might be right but not right enough - this goes to parity, that is what the Germans want, so it will happen.

Wed, 06/09/2010 - 17:43 | Link to Comment KxAlpha
KxAlpha's picture

I wonder, which germans are you talking about?

- The German (as in the average Joe) want's a strong € as in $1.60+++

- The german MSM want's the weak € as this supposedly strengthens our exports, as if lending others money to buy our stuff is export really, reimport more likely. Anyhow, the drum the MSM is beating is: weak € equals export going up even more (oh noes, China beat us in exports, as if China can be compared to tiny Germany, lol)

- The official government does not wan't a weak €, as this undermine anything the officially try to do

- The shadow government sure likes a weak € as this allows them to do any of the following, while keeping "a white vest":

a) drop the € to reintroduce some new DEM, which really is nothing more than just another fiat bullcrap currency, bringing a big haircut to savers, smaller one to debtors and a huge win for banks

b) split the € into stronger nothern € and Zimbabwe like southern €

Anyways, I just wanna see the end to all this madness, let it crash already, try to avoid WW4 and let me plant my victory garden in peace ;)

Wed, 06/09/2010 - 17:53 | Link to Comment jbc77
jbc77's picture

If we're at the opening salvos of the Euro meltdown.....and Euro banks are rushing to warehouse "every Euro" they have with the ECB, why go long now. Eventually GS will be right....

Wed, 06/09/2010 - 17:25 | Link to Comment Sudden Debt
Sudden Debt's picture

+1000000000000000000000000000000000

 

HAHAHA, Just alway do the oposite to make money :)

Wed, 06/09/2010 - 17:40 | Link to Comment DoChenRollingBearing
DoChenRollingBearing's picture

Someone (not me, no expertise re Goldman) ought to keep track of their calls and how they work out.

Seems to me that doing the opposite of what The Squid recommends would do well.  Front running their own clients, shame on them.

Look at Schwartzman (BlackStone I think).  When he IPO'd, he sold a huge amount.  That was the top.

Someone do a study!

Wed, 06/09/2010 - 17:27 | Link to Comment sysin3
sysin3's picture

When Goldman says "sell", it means "y'all sell because we're buying and we want to do it on the cheap."

Those who cannot speak Squid are condemned forever to live in poverty.

Wed, 06/09/2010 - 17:51 | Link to Comment Prof Gulliver
Prof Gulliver's picture

"Oh stewardess, I speak jive"

Wed, 06/09/2010 - 17:28 | Link to Comment ZeroPower
ZeroPower's picture

Agree on GS being a contrarian indicator, but in this case, EURUSD to 1.1 or less imo

Wed, 06/09/2010 - 18:08 | Link to Comment thesapein
thesapein's picture

But if GS really wanted to, they could add a bump on that road to parity, couldn't they?

Funny, it just occurred to me that GS could totally make it happen without ever doing anything wrong. All they'd have to do is tell the truth and say that the USD is done.

Wed, 06/09/2010 - 17:30 | Link to Comment carbonmutant
carbonmutant's picture

Italy's largest union to stage general strike this month against austerity measures

ROME — Italy's largest union has called a general strike this month to protest the government's €25 billion ($30 billion) cuts aimed at reducing the budget deficit.

The CGIL labour confederation says the austerity measures are unfair and hurt the weakest workers. The union said Wednesday that it would stage a national strike on June 25.

Wed, 06/09/2010 - 17:31 | Link to Comment YourAverageDebtSlave
YourAverageDebtSlave's picture

I hate the Squid, but on this one I don't see how the Euro is not going any lower.

Wed, 06/09/2010 - 17:34 | Link to Comment Hansel
Hansel's picture

I don't understand why the euro is trash compared to the dollar.  I don't have a horse in this race though.

Wed, 06/09/2010 - 17:42 | Link to Comment hellboy
hellboy's picture

just a question of time... right now the spotlights on Europe, sooner or later it'll be the US.. So short EURUSD now and after go long... my plan anyway!

Wed, 06/09/2010 - 18:37 | Link to Comment Strider52
Strider52's picture

On a long enough timeline, the survival rate for all currencies drops to zero.

  Disclosure: I own a cat.

Wed, 06/09/2010 - 19:47 | Link to Comment Cathartes Aura
Cathartes Aura's picture

hahahah!  + a whisker.

Wed, 06/09/2010 - 20:41 | Link to Comment e_goldstein
e_goldstein's picture

If you can visualize a bowl full of turds, the dollar is the turd floating at the top.  It may be the last turd down the drain; but it is still a turd, and it is eventually going down the drain.

Wed, 06/09/2010 - 20:54 | Link to Comment MaximumPig
MaximumPig's picture

I think it's sheer unwillingness of the moneyed masses to believe that there is actually no currency that is safe;  the safety of the dollar is the consensus lie of the moment.

[Yes, I am reading Cognitive Dissonance's essay.]

Wed, 06/09/2010 - 18:11 | Link to Comment thesapein
thesapein's picture

You're thinking in terms of things like gold. The euro will go down compared to gold.

But why can't the dollar start falling faster?

Wed, 06/09/2010 - 17:32 | Link to Comment Fish Gone Bad
Fish Gone Bad's picture

The problem here is that to be a really good liar, one needs to mix some truth in with the lies to make it more believable.

Wed, 06/09/2010 - 17:34 | Link to Comment Muir
Muir's picture

time to go long

odds favor this bet

No EUR QE ---> deflationary

But yet, this may herald a strong move in US stocks (in nominal terms)   

Wed, 06/09/2010 - 17:34 | Link to Comment Kataphraktos
Kataphraktos's picture

Could be the game is a bit different, they might have already shorted and now they're talking their book.

 

Maybe they figure they've pulled the "sell so I can go long on your back" thing enough, they don't want to risk some pissed-off client walking in with a 12-gauge room broom and sending a couple of dozen Goldmanites to the Great Mon Calamari Cruiser In The Sky.

Wed, 06/09/2010 - 19:54 | Link to Comment MsCreant
MsCreant's picture

You really think they care about their employees? You paint way too rosy a picture of the sociopathic, psychotic, stone cold vampire sqwidz. They would eat their young if it made them money. If a client sprayed a room like that, you can bet they'd find a way to make money off it and consider the collateral damage worth it. 

They are not scared. That is the whole problem with them in one brief sentence.

Wed, 06/09/2010 - 17:37 | Link to Comment Prof Gulliver
Prof Gulliver's picture

"Endogenous"

Somebody's been looking through the dictionary.

Wed, 06/09/2010 - 18:04 | Link to Comment Cognitive Dissonance
Cognitive Dissonance's picture

"Oh stewardess, I speak jive"

Wed, 06/09/2010 - 19:14 | Link to Comment Prof Gulliver
Prof Gulliver's picture

LOL. Whup the squid upside its endogenous head.

Wed, 06/09/2010 - 17:41 | Link to Comment truont
truont's picture

Score one more golden star for Goldman-Client relations.

Wait--Goldman still has clients?!  I guess it's true:  "A fool and his money are soon parted," and Goldman is salivating over the fools they have collected over the years.

Goldman is like a kid standing over an anthill with a magnifying glass. 

"Go there, ants!  Oh!  You got burnt by the light!  Go over there!  Oh! You got burnt again!  (hee..hee..hee..) Go over there this time!  (hee hee)."

Wed, 06/09/2010 - 17:45 | Link to Comment Leo Kolivakis
Leo Kolivakis's picture

Read this too:

http://finance.yahoo.com/news/Ultimate-Contrarian-Trade-Buy-cnbc-473528176.html?x=0&sec=topStories&pos=4&asset=&ccode=

Ultimate Contrarian Trade: Buy Euro

Contrarian traders are contemplating going long the euro, which has been the market's punching bag for the last month and one of the most successful shorts for hedged funds since housing.

"The euro is failing to rally on good news - whether of an economic or a political nature," wrote Audrey Childe-Freeman, senior currency strategist for Brown Brothers Harriman, in a note to clients. "In this context, it is rather controversial to be anything but a euro bear, but this may be the time to identify a few constructive developments and to get prepared for a potential correction" to the upside.

The currency is up a second day versus the dollar after Federal Reserve Chairman Ben Bernanke told a Congressional panel that the US would do what it can to support the European debt crisis. Bernanke has already opened up emergency swap lines as a backstop for the Europe's crisis. The European Central Bank meets tomorrow.

The euro fell to a four-year low on Monday as hedge funds ganged up on the currency in a bet that any rescue package for Greece will only temporarily delay the spread of the crisis to other countries such as Hungary and Spain. Just a quarter of hedge fund managers believe any rescue package will have a positive long-run impact, according to a survey of investors by TrimTabs/BarclayHedge. About half of the managers are bullish the dollar.

"The bailout received a cool greeting, even within the euro zone," said Vincent Deluard, global equity strategist at TrimTabs, in the survey release yesterday. "The 'shock and awe' rescue package is unlikely to prevent speculators from attacking European currencies and punishing heavy debtors."

 

  • Euro Rises on Cautious Economic Optimism
  • Oil Futures Soar on Latest Inventory Report
  • Gold Retreats From Record High on Profit-Taking

 

In her note, Brown Brothers Harriman's Childe-Freeman laid out seven reasons be "constructive" the euro in the face of all this pessimism, including that the short trade may be too overcrowded, the euro zone is now actually a step ahead of the US in addressing ballooning deficits and renewed cooperation between the French and German governments. She also played down rumors that central banks, including China and Japan, would be selling their euros.

The CurrencyShares Euro Trust (NASDAQ: fxe), an ETF which attempts to mimic the movements of the currency, pared its 2010 decline to 16 percent following Bernanke's remarks.

"Bernanke will defend the euro to stave off panic in our markets," said Joe Terranova, chief market strategist for Virtus Investment Partners and a Fast Money trader. "He's doing it through words now, but deep down he hopes it never leads to action."

Traders are still hesitant to touch the euro directly since it's been persona non grata for so long. With violent movements overnight, why take the risk? Instead they are buying other securities that will benefit from a recovery in the region's debt crisis.

Terranova, for example, is buying the PowerShares DB U.S. Dollar Bearish ETF (AMEX: udn) and the CurrencyShares British Pound Sterling (NASDAQ: fxb).

Wed, 06/09/2010 - 17:49 | Link to Comment Tyler Durden
Tyler Durden's picture

Joe Terranova also said Goldman will absolutely, positively never go below $140.

Wed, 06/09/2010 - 18:40 | Link to Comment johngaltfla
johngaltfla's picture

I love CNBC. I always wish they would take more calls because I still want to know what to do with my WaMu stock their talking heads said was the "buy" of the century at $20. (J/K - I never owned it)

Wed, 06/09/2010 - 19:58 | Link to Comment trav7777
trav7777's picture

thanks for lettin me borrow those shares to short, btw...I owe you a beer

Wed, 06/09/2010 - 21:43 | Link to Comment Rick64
Rick64's picture

Ouch.

Wed, 06/09/2010 - 18:05 | Link to Comment ghostfaceinvestah
ghostfaceinvestah's picture

It's basically come down to Merkel vs Bernanke.

I am having a deja vu moment - weren't you pumping the Euro about 10 cents ago?

http://online.wsj.com/article/BT-CO-20100609-712535.html?mod=WSJ_latesth...

 

The Dow Jones Industrial Average was down 29 points, or 0.3%, to 9910, falling below the psychologically important 10000 level. The measure spent much of Wednesday's session above that level. But it pared some gains after the release of the Federal Reserve's "beige book" report and then quickly fell through 10000 as Merkel defended Germany's EUR80 billion austerity package for the next four years, saying Wednesday that the time to withdraw government stimulus has come and lessons from the debt crisis must be learned.

Merkel's comments that the bailout package only buys time for the euro zone spooked the market, investors said. Coming from Germany, considered the strongest economy in Europe, the remarks highlighted the euro zone's problems.

Wed, 06/09/2010 - 17:45 | Link to Comment homersimpson
homersimpson's picture

A broken clock is right twice a day.. this might be one of those "correct" calls for GS..

Wed, 06/09/2010 - 17:47 | Link to Comment kengland
kengland's picture

A much better indicator is the Iranians. A few years back they were hell bent on setting up a Euro only borse for oil. Shortly after, dollar SURGED.

 

How about pairing em up this time? Iran dumps...what....15b in Euro last week? GS targets 1.15? Get yourself all up in there with a good hard long Eur/$

Wed, 06/09/2010 - 20:09 | Link to Comment Arkadaba
Arkadaba's picture

Yeah, the Iranian move surprised me as well - especially, as you noted, much of the Middle East, including the Iranians, were very interested in setting the price of oil for something other than dollars a few years back.

Wed, 06/09/2010 - 17:51 | Link to Comment Citizen of an I...
Citizen of an IKEA World's picture

Time to 'go long' what?

Cases of canned albacore in oil?  Bulk sacks of rice, beans and ammo?

Wed, 06/09/2010 - 17:57 | Link to Comment DCon
DCon's picture

honey in a glass jar, well sealed, will never go off.

 

plenty of energy.

 

Wed, 06/09/2010 - 17:56 | Link to Comment Turd Ferguson
Turd Ferguson's picture

Maybe they are just fucking everyone. Sounds reasonable. They certainly do.

However, in this case, I think that they just have absolutely no fucking clue. They are using their old, outdated nonsense models to project the Euro going forward. Like using a flat earth map to navigate the New World.

Fiat currencies are done. There are no fundamentals upon which one can rely for economic and currency forecasts. Its a brave new world. The dipshits at GS just haven't figured it out yet. 

Wed, 06/09/2010 - 19:18 | Link to Comment knukles
knukles's picture

"Maybe they are just fucking everyone."

Sociopathic Insight of the Day

Wed, 06/09/2010 - 18:00 | Link to Comment MarketTruth
MarketTruth's picture

[S] Goldman gaming their clients again?  No way, say it aint so? [/S]

Wed, 06/09/2010 - 18:09 | Link to Comment moldygoat
moldygoat's picture

Grand Super Cycle posted this earlier

http://stockmarket618.wordpress.com

Looking for a breakout

Wed, 06/09/2010 - 18:15 | Link to Comment SilverIsKing
SilverIsKing's picture

Why does GS make these trading calls public?

I know the answer but if they were asked, what would be their answer?

Wed, 06/09/2010 - 18:34 | Link to Comment Chopshop
Chopshop's picture

GSCO loves to trumpet mkt calls that are very wishy-washy ... market strat is one thing while tactical allocation and technical timing are entirely another.  As advisors, their role is to provide clients with leadership and these types of broad position pieces are for allocationary purposes only, not trading tomorrow.

When you are perfectly profitable in the aggregate on a daily basis, why wouldn't you (GSCO) stick your neck out publicly so as to purposely look foolish?  Doubt they have any issue with being 'wrong' in writing since they sure as hell ain't trading off talk.

 

More importantly (and the reason for timing of GSCO note): we may be approaching intermediate-term inflections for the $ and €.  As a trader would not bother being short dollar for 3-8 weeks and 3-5 cents, would much rather be sniffing round the Euro and waiting for a blatant failed new low to hold.  One more push higher for uncle buck into 89.6x and one more push lower for the EU into 1.182 would look a lot better for primary reversal but if you are managing a big ship you ought already be turning the wheel.  That said, very firm trend is simply in need of a breather and a reprieve, if we get one here, will be just that.  The dollar's 16+ month march higher remains on schedule and only the first leg itself appears to be 9x% completed.

Wed, 06/09/2010 - 18:41 | Link to Comment SilverIsKing
SilverIsKing's picture

So that's what they'd say?

Wed, 06/09/2010 - 18:20 | Link to Comment Quinvarius
Quinvarius's picture

Goldman has really been sucking ever since they lost their inside informers at the Treasury and the Fed.

Wed, 06/09/2010 - 18:50 | Link to Comment anony
anony's picture

Believe what Lord Blankfien says for public consumption at your own risk. 

They, goldamn sucks, have controlled as much as 75% of the trades on any given day. With that kind of power no matter what you say publicly, you can make teratillions with 2000x leverage for every utterance you make publicly.

I don't know specifically how he does it, but you can bet all you have in your go-to-hell fund on it.

Wed, 06/09/2010 - 18:38 | Link to Comment Fazzie
Fazzie's picture

 If the central banks cant prop up the euro, then I think even the squids calls cant really move it very far.

  That said, their calls on the euro could be matched by a monkey flipping a coin. The best and brightest dont seem so bright when they have to make a call relying on the same data availiable to everyone else.

Wed, 06/09/2010 - 18:40 | Link to Comment GFORCE
GFORCE's picture

This is a pure "buy" signal. The euro is currently forming a 'bottom'. Shows how desperate Goldman are as the music runs out. Stiff their investors like clockwork to build a depression/lawsuit cushion.

Wed, 06/09/2010 - 18:41 | Link to Comment johngaltfla
johngaltfla's picture

Just remember gang-Europe is on vacation starting Friday. So moves could be exaggerated in either direction for the next month.

Wed, 06/09/2010 - 19:20 | Link to Comment knukles
knukles's picture

Hope they're going somewhere with a cheap currency.

Wed, 06/09/2010 - 19:38 | Link to Comment divide_by_zero
divide_by_zero's picture

The situation reminds me of this classic

http://www.youtube.com/watch?v=xWGAdzn5_KU&feature=related

Sun, 06/26/2011 - 11:02 | Link to Comment anony
anony's picture

Lord Blankfein's heart soars like a hawk.

Wed, 06/09/2010 - 21:47 | Link to Comment Rick64
Rick64's picture

Everybody expects the euro to go to parity. This is an excellent time to fuck everybody that is short. Don't under estimate the squids obvious technique.

Wed, 06/09/2010 - 21:56 | Link to Comment Nolsgrad
Nolsgrad's picture

but YTD their tactical trades are up 50bips. Knock of 34bips for 17 round trip trades and you're still in the green.

 

Alpha baby!

Thu, 06/10/2010 - 01:01 | Link to Comment smiths
smiths's picture

i'm with Fish and Homer,

at the point that everyone says Goldman is contra indicating they tell the truth,

i reckon it will go to exactly what they have said it will

Thu, 06/10/2010 - 01:04 | Link to Comment smiths
smiths's picture

or is it more like this classic situatio

 

http://www.youtube.com/watch?v=3EkBuKQEkio&feature=related

Thu, 06/10/2010 - 01:27 | Link to Comment Borat
Borat's picture

One thing we have seen in the last days, bunch of initiatives to cut down the EU deficits. Slowly, at least, you see the intention to do something. We haven't seen that on US, wonder if we will ever see. On a trading perspective, I see so many people calling the parity that I think we are about to see the mother of all short squeezes. when you here the door man, interns, and whatever people just don't know anything, talking about Euro parity, that is a major long alert. Once again, I think that people don't know how to separate a macroeconomic LT analysis, from a short term trading perspective. We all know the system is broken and will eventually collapse, but if you become a perma Bear we will br killed by this market volatility. Market is really on sideways for a while, eventually will break to one side, honestly, hard to say if up or down.

Thu, 06/10/2010 - 11:00 | Link to Comment Grand Supercycle
Grand Supercycle's picture

 

The EURO breakout I suggested yesterday, has made its move ...

http://stockmarket618.wordpress.com

http://www.zerohedge.com/forum/latest-market-outlook-1

Thu, 06/10/2010 - 19:11 | Link to Comment Geoff-UK
Geoff-UK's picture

Hasn't FOREX shown itself to be akin to betting that Harrah's casino chips will be more valuable next week than the casino chips of the Mirage? 

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