Goldman Tells Clients To Go Long Euro, $1.45 Three Month Forecast, $1.35 Stop

Tyler Durden's picture

Just because, you know, we still need the market to go up a little more so we can short the crap out of it even as we tell everyone how stocks have about 100 upside on average (link to Goldman's most recent conviction list, which incidentally benefits massively from a weak dollar, and a strong euro). Furthermore, by going long the euro will not be breaking any soon-to-be-misconceived laws, whereby shorting to EUR or, and we await for official Congressional confirmation on this, buying the dollar, will be seen as an act of treason.

Full Goldman note:

Trade Update: Go long EUR/$ on reversing growth differentials, BBoP-related pressures and declining risk premia in Europe March 12, 2010

We realise that this will be a controversial view given the real and ongoing issues around sovereign risk and the European outlook. While we do see sustainable Dollar strength in the more distant future, we think the short-term pressures are likely to reverse.

Two key forces have led the EUR/$ from 1.51 to current levels; relative growth surprises between the US (positive) and the Eurozone (negative), and the fiscal tremors emanating from Greece. After a new set of fiscal measures announced by the Greek authorities, and their endorsement by members of the Eurogroup and the ECB, the risk premium has started to decline. As for the relative growth surprises, the situation will likely reverse going forward.

Our growth forecasts in the US suggest we will see quite a substantial decline from a peak 5.7% growth rate (qoq ann) in Q4 2009 to about 2% or slightly lower by mid-2010. Much of the renewed slowing in US growth will depend on a fading fiscal stimulus and on the inventory cycle, which appears to have been almost completed in Q4. Consequently, over the next couple of months, output growth will converge towards sub-trend growth in final demand. In the Euroarea, the inventory dynamics are quite different and clearly lag the US. Q4 saw virtually no contribution to growth from inventories, which now will likely come over the next 6 months or so. Moreover, demand growth in the Eurozone is likely to remain much closer to trend than in the US, a reflection that imbalances in the US likely remain a bigger obstacle to a narrowing output gap. Overall, it appears Eurozone growth will accelerate during H1, while US growth is likely to decelerate quite notably. US and German manufacturing orders for January already hint in this direction, as do strong January IP numbers out of France and Italy.

The fiscal risk premium in the EUR, related to the situation in Greece may decline somewhat, given the positive comments from Eurogroup members in response to the enhanced Greek deficit reduction plan presented this week. Should Greece not be able to raise the necessary funds for upcoming debt maturities, it is likely that other Eurozone members will offer the country non-commercial funding. No doubt, the fiscal challenges in southern European countries are far from being solved but some highly disruptive tail risks appear removed for now and hence an extension of the decline in risk premium appears likely.

In addition to declining fiscal risk premia and an expected reversal of growth surprises, the external side also remains Dollar negative. The Eurozone current account deficit is about 0.6% on a 12mth trend basis, while the equivalent US figure continues to show a much larger deficit of currently 3.3% of GDP. Moreover, when looking at the broader FX supply and demand in terms of the BBoP (current account + portfolio flows + foreign direct investment), the US deficit runs at 3.9% of GDP (4-qtr trend), while the Eurozone records a surplus of 2.2% of GDP. Higher frequency data does not suggest there has been a notable change to these trends.

Combining these factors, we think EUR/$ has the potential to rally from here towards our 3mth forecast of 1.45. We would go long with a stop on a 1-day close below 1.35.

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Anonymous's picture

> "We would go long with a stop on a 1-day close below 1.35"

"would" ?

emsolý's picture

would -->  hypothetical for: if we had any clients left

tenaciousj's picture

which means they are gonna drop that bitch to 1.349 and take your money then take it to 1.45

TraderMark's picture

Interesting video this AM with Pippa Malmgren (who?!) who CNBC touted as Europe's Meredith Whitney

an interesting perspective from what foreigners think of what the US end game is doing, and effectively while the US is stuck in some deflationary patterns foreigners believe Ben will just inflate us to hell.

Anonymous's picture

She's awesome. Thanks for sharing.

Anonymous's picture

I liked Pippa's punchline at the very end !! She seems more knowledgeable than Meredith (did you year about her one year anniversary bash and the who's who list that came for the party btw ?)

Anonymous's picture

I saw that clip, and she is dead on. The rest of the world knows what the US has only a few options and politically they can't go the option of austerity so they will print our way out and as she said at the end when inflation is shooting up Bernanke won't stop it because if he does its like taking the fuel away from the American economy and he can't do it. We as a country are going to feel this financial pain for decades, just wait.

Anonymous's picture

So an interesting article on Clusterstock points to the fact that Goldmans CDO flow desk is next to the PROP desk and has the same MD - Crazy world we live in

ratava's picture

Wow I actually agree with teh Squid on something!

gmak's picture

Wasn't the BBoP deficit the same figures as GS says for the last 3 - 6 months? The EUR is driven by sentiment and speculation - no longer by the balance of flows. IF the EUR does head up to that level it would likely be Asia CB driven, no? 

GS: Blah blah blah.....  my book ...... blah blah blah.


THE DORK OF CORK's picture

Finally the absurdity of the situation has dawned on Dork.

The Markets go back and forth , up and down ,  left and right - not on any fundamentals but on the recommendation of entities that are in control of the money printer in the sky.

THEY ARE PLAYING WITH MONOPOLY MONEY folks and extracting a surplus from its movements.


Anonymous's picture

You cant go wrong if Goldman says it!

Unless of course they are about to dump the euro!

It dosn't add up. Goldman can control markets on their own. They dont need the public doing that for them.

I changed my mind. The euro should be falling. At least now that they announced bailout plans for Greece.

Just like the dollar fell when we announced our bailout plan.

Orly's picture

The actual top to this move will be to 1.4740.


To Grand SuperCycle:

This is not a Euro rally.  It is a correction in a bear market.  :D



aurum's picture

No surprise here. The euro has been oversold for weeks. The cot positioning report was dead on.

Anonymous's picture

interesting array of eur / usd opinions and recommendations -they'll probably all happen ;-) we just don't know in what sequence....

buzzsaw99's picture

GS would like to keep people perpetually behind the curve. The recent Euro weakness was already pricing in a bailout. Now they want people to buy the Euro just as the multi-year weakness is about to exert itself in spades? This is a reward to the EU for the bailout. Don't listen to GS public announcements, they'll only rot your brain.


BlackBeard's picture

Bailout, no bailout, the situation is bad either way for the Euro.

perchprism's picture


This is all crap.  It's GS making suck-up to the EU after it's been all but banished to the sidelines lately.

Mr Lennon Hendrix's picture

Euro bottomed at $1.35.

DXY topped at 81.5

Whats up ZH?

Grand Supercycle's picture

As warned about earlier, the bullish basing has resulted in a EURO and EUROYEN rally.

Anonymous's picture

It's only a 3 month target and is achievable with the record short positioning in EUR. This was the case in the dollar before it rallied (remember the doomsday talk then?).

What's occuring now (and many can't see) is the reality that all the stimulus spending did little to spur growth. Look at recent figures from UK/Germany. The stimulus halted deflation and allowed banks/rich to adjust their holdings ahead of the next fallout. The global credit based economy is broken and by late 2010, this will finally be realised.

This time we will have no more bullets.

Simple's picture

no need in high frequency fancy gay robots, same longterm forecast here: (scroll down)

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