Goldman Pitching Short EURCHF Trade; Time To Go Long
One of the worst top tickers in the history of Wall Street, Goldman's FX team, has come out with a tactical short EURCHF call. Like every other time Goldman says to do something, the prudent thing to do is the opposite. Of course, this means more weakness for gold, as the Swiss Franc is simply the safest equivalent of gold in the monetary realm. Oh well - if better cost bases are to be had, than so be it. Of course, if Goldman is right, this means that today's short-term reversion in gold is just that, and nothing more. On the other hand, we wonder how Goldman reconciles this call with its bet from two weeks ago that the euro is going to $1.55 from the firm's previous target of $1.38, which incidentally was our indicator that the EUR has top ticked.
Since the beginning of the Summer we have highlighted the risk for intensifying political tensions in France, linked to the implementation of much needed fiscal and pension reforms. Over the last couple of weeks, the intensity and frequency of French strikes has clearly increased with nationwide fuel supplies threatened and students increasingly getting involved in protests. Further escalation of the situation could provide a trigger for the reduction of speculative long positioning in the EUR, which appears stretched according to our GS Sentiment Index.
We have also been highlighting for some time that the CHF appears to remain under trend appreciation pressure from the unwinding of legacy carry trades, also reflected in our 3 month forecasts of 1.30. One indicator we watch in that respect is the long end of the implied EUR/CHF volatility curve, which continues to mark new highs.
Overall, it appears the balance of risks has shifted towards a down move in EUR/CHF and we recommend going tactically short with a one-day stop on a close above 1.36 for an initial target of 1.28, currently at about 1.3425.