Goldman's FX Recommendation Recap In A Post BOJ-Intervention World

Tyler Durden's picture

Some required reading for all FX traders, as Goldman's Thomas Stolper breaks down his team's view on where the USDJPY is headed (no surprise there - can't stray from the party line), and summarizes his latest outlook on the EURUSD, which as we noted previously, is now expected to rise as high as 1.50 shortly. The poor dollar remains the most hated currency in the world... just as the chaircreature ordered.

From Goldman Sachs

1. G7 intervention in the JPY: Immediately after last week’s earthquake in Japan we warned about a possible increase in volatility, which in turn could push the JPY to new record levels. We also highlighted that in such a scenario the likelihood of intervention would be high. The events pretty much followed this script. During the most illiquid FX markets last Wednesday night after the NY close and before the Asia open $/JPY dropped to new record lows below 79.75, which then triggered stops and option barriers all the way to sub 77 levels. Strong verbal intervention by the Japanese authorities followed on Thursday and was ultimately backed by coordinated G7 intervention Friday. $/JPY closed about 1.5% below the pre-quake level and 6.5% higher than the new record lows marked on Wednesday night.

2. How much has the G7 contributed to the Intervention? It will be a while until we know how much the other G7 countries committed to the intervention but we can look at the last joint G7 intervention in September 2000. At the time the ECB led the charge to support the EUR. A joint intervention was followed by several additional operations by the ECB alone. In September 2000, ECB FX reserves rose by about EUR 18bn and data from the Fed and the Japanese MOF suggest that the US and Japan contributed with additional purchases of EUR1.5bn each. This template would suggest most of the heavy JPY selling is done by the Japanese authorities. But the primary importance of a coordinated G7 intervention is the signal it sends to the markets. Disruptive JPY strength is not in the interest of anyone. Given how easily policymakers tend to disagree on currency issues the joint G7 message is a strong signal – regardless of the actual amounts spent by other central banks.

3. Yen reserve holdings by other CBs:
One frequently asked question is if the other CBs actually have enough JPY to intervene or if they need to borrow from the Japanese first. A quick look at the most recent annual reports suggest the ECB holds about $13bn worth of Yen, the BOE $3.5bn and the Fed about $10.3bn, of which one third is held on deposit. This suggests other central banks most likely had enough reserves to participate with their own funds. Of course this assumes a relatively small contribution similar to the 2000 interventions in the Euro.

4. More choppy range trading in the JPY: In our latest FX Monthly, released last Wednesday, Fiona Lake looks in some detail at the different forces affecting the Yen currently. Bottom line is that there are many cross currents which potentially offset each other. Moreover, the competing forces may materialise at different points in time. The most likely scenario therefore remains choppy range trading. And given the hurdle for additional intervention by the Japanese authorities is likely low, the bottom of the range appears pretty well defined. We will need to wait until there is more certainty about the Japanese situation before we can better assess the medium term outlook for the post-earthquake Yen.

5. More upside in EUR/$: As highlighted in our previous FX Views, the latest TIC data was quite important as all indications suggested the US attracted strong equity inflows in January. But to our surprise the US actually recorded a net equity outflow during that month. US investors bought more foreign stocks than foreign investors bought in the US. Together with rising oil prices and a deteriorating trade balance, this suggests the BBoP deficit is widening  and the USD remains under downside pressure. On the other side of the Atlantic we remain encouraged by the steady progress towards a comprehensive solution of the European sovereign issues, likely translating into a further reduced fiscal risk premium in the Euro. Together with the more hawkish stance of the ECB relative to the Fed, this will likely translate into further EUR/$ upside. We were also encouraged by the resilience of EUR/$ during the notable sell-off in risky assets last week – potentially as sign of the strength in the underlying trend – and decided on Friday to go long EUR/$ again for a target of 1.50 and a stop on a close below 1.35.

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FunkyMonkeyBoy's picture

Don't worry, you can bet your left gonad the powers that be have got a nice new black swan lined up to save the dollar...

... that european collapse seems long over due now.

Steroid's picture

Meanwhile, they can write a Default Swap on your gonads.

Michael's picture

The economic edifice of world markets was dealt a major blow by Japanese intervention entities (BOJ) and the international banking cartel last week. The question now is; When does the esoteric herd hive mind shift happen again? What day does the herd sell off mega US dollars and treasuries?

I can pinpoint the herd hive mind shift in SW Florida RE for Lee County’s median home price to December 2005 at the height of the residential real estate boom that reached a peak of $322,300.  The median price of an existing home there sold today is $94,400.  What triggered the hive mind shift? The blogosphere's housing bubble blogs certainly brought awareness to the sheeple something was wrong with paying 10 times gross income for a home. When critical mass reached 55% or so awareness, the sell-off began in earnest with many investors left holding the bag. The same phenomenon will most certainly happen to the dollar and treasury bonds as the blogosphere's work reaches critical mass in the dollar crisis arena.

The US dollar is dying, as evidenced with the counterintuitive drop in value last week when hundreds of trillions of Yen were printed. So what day, week, month, in the the near future do US Treasuries and dollars sell off worldwide?

Spitzer's picture

I like that, its quite simple analysis. 55% and look out. Bill Gross probably helped too.


robertocarlos's picture

The housing bubble blog rules.

Weisbrot's picture

the criminal consorteum that forced the EU in to existance would not allow such a thing.

Ruffcut's picture

As it stands I can't trade any futs.

I like my balls protected.

If in doubt, don't!

Yen Cross's picture

On intervention. NO INTERVENTION. I repeat! NO INTERVENTION. Spikes are OK!

MiningJunkie's picture

Just buy the E/S and relax. Print, reflate, debase.

Never underestimate the replacement power of equities within an inflationary spiral.

Long live the United States of Zimbabwe.

Cdad's picture

This Euro/USD to infinity nonsense has to be reaching its peak.  As will be proven the case for the union, surely the case for the currency will be a failure.  So of course what this means is that Goldman has to pump the currency constantly, raising Goldman, of course, uses the lift to short massive quantities of Euros.

Anyone caught long this thing for more than an afternoon deserves to lose his entire fortune.  When did "risk on" become "long Euros?"  Seriously, who is Goldman kidding with this nonsense?  Europeans?

surfsup's picture

They always do this right when its about to turn...  

Spitzer's picture

The Euro is less sick then the dollar, even though it doesn't trade that way. Europe is a net creditor for fuck sakes. Does that not say enough ?

TradingJoe's picture

I agree! Der Euro wird fallen, in ein langes scharfes Messer:)))! I am long Uncle Bucky, for now!

Careless Whisper's picture

From Goldman Sachs   



Captain Benny's picture

Am I the only one thinking that its time to make the big "risk off" trades that the mutual funds and hedgies haven't done?  Short the crap out of this market!  The G7 made it clear that they want to sink their economies along with Japan by helping devalue the Yen.  The dollar sunk pretty damn low relative to everything else besides PMs ;-)  ...


I just don't feel good about this intervention that took place last week.  They did the exact oposite of what should've been done to help the Japanese economy as well as all of us common folk.  Once again, the Fed acted in the interests of the banking elite and not the people.  Of course GS is toting the party line.

Itsalie's picture

Has anyone observed any deviation from the risk-on/off trade? Non? Then why bother with a special update on the euro? Just one heading will do: risk on - buy euro, PM, junk bonds, AG, etc etc. Risk off - buy chf, jpy. In all cases thrash ben's funny money.

Lord Welligton's picture

I am not an FX trader.

So I didn't bother reading the whole thing.

I started to. But I gave up. It reads like a motivation session for second-hand car salesmen.

They know they're selling shit but it's thier job.

Plus they get a bonus.


Can someone who is an FX trader explain to me the value of any currency?

Does it take a 9 earthquake & Tsunami? A regional war in the Middle East and North Africa?

Perhaps not.

Perhaps currency is not the thing suggested.

(means of exchange, store of wealth, unit of account)

Perhaps currency is the thing it always was.

The power to create money.

And those that have the power to "create" do so.

They of course need their well paid subjects to "trade" the illusion.



Lord Welligton's picture

Thanks for that.

Will definitely give it a look.

Yen Cross's picture

Have fun slicing your pound sterling little Lord Fauntleroy. I works well with a GLOWING spinach salad.

Lord Welligton's picture

Wellington was Irish. As am I.


Yen Cross's picture

Have fun slicing your pound sterling little Lord Fauntleroy. It mixes well with a GLOWING spinach salad.

drshock18's picture

It's only a matter of time before Portugal needs a bailout (april actually), Greece needs another, and Spain needs one. I'm not at all phased by the euro climbing against the dollar. The euro is way overvalued.

scratch_and_sniff's picture

This is most likely attempted rape, the eur/usd is at its most precarious position for weeks and they weigh in with this? I feel kind of bad for the people that actually trust these guys with their money…what goes around comes around I suppose; if you are dealing with GS god only knows how many people you have raped.

humm, they went long some euro on Friday, well that’s strange, because i would be very surprised if they weren’t buying it on thursday night for the final leg up. I see a wedge playing out here as there are still too many lingering doubts for the kind of strength needed for a break out, they're just not the kind of concerns that disappear at breakout speed, and I doubt a breakout would convince anyone the concerns have gone away, a wedge suit’s the backdrop perfectly, i.e a retest of 1.35/6 (thats close to GS stops! how fucked up is that?) after a few more stabs at 250-80. No rush.

Spitzer's picture

You like the dollar at 75.6 ?

scratch_and_sniff's picture

Saying that i might fancy the dollar sort of takes the shine off shorting the euro. No i dont really fancy it, just weary that the euro is getting ahead of itself-at this rate we will be checking out all time highs, in no time at all. I dont like making calls against any trend(and technically this is a strong one), i feel its over done for now. Just waiting it out for the catalyst. If we dont get it, i wont have any trouble getting back in.

Weisbrot's picture

I would like the dollar at 80 but see it in the 60's - in the not so distant future

Buyemall's picture

It must be a first since a break in the correlation between the eurusd and the stock market is interpreted in terms of the currency pair condition. It is usually the other way around.

GFORCE's picture

This makes me happy with my Euro short, knowing that the squid is about to join me.