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The Latest EUR Smackdown Comes Courtesy Of BofA, Which Lowers It 2011 EURUSD Target To 1.10 From 1.20
First Goldman came out with a "favorite tactical short" of the EURUSD, targeting a 1.18 rate several days ago, now BofA is out with the latest hit job on the European currency: the bailed out bank's John Shin has said that he is lowering his "forecast for the euro, pushing down the year-end 2010 target to 1.15 from 1.28 and the year-end 2011 target to 1.10 from 1.20." He continues, "the evolution of the crisis has not only been a near-term negative for the euro, but signals poorly for its medium and longer-term future." Now this is very ironic, because as we pointed out two short days ago, the very same firm's European strategist, Hans Mikkelsen, espoused a much different optimistic point of view: "While we continue to view funding pressures as contained due to the
ECB/Fed currency swap lines, the main risk to our tactical long credit
positions remains any disorderly declines in the Euro as that would
undermine the credibility of the ECB to contain the sovereign crisis." Presumably the take home here is that as long as the decline from 1.20 to 1.10 is orderly all shall be well? Because as has been repeatedly demonstrated, hedge funds always align calmly, in single file, when the Central Bank theater is burning, happy to see their sell EUR orders executed if and only if RBS, BofA, Barclays and GS so desire... We eagerly await Mikkelsen's positive spin to Shin's note, as otherwise those defending Europe's less than rosy liquidity situation may be down one more advocate.
In the meantime, IMM COT reports that EUR shorts actually dropped to a 5 week low, down to -93,325 net spec total shorts, from -106,736 in the week before, and down from a record -113,890 in the week edned May 11. With the EUR down to 5 year lows, look for this number to once again reverse toward in a bearish direction.
Full EUR beatdown from BofA:
USD: forecast adjustments for EUR
We have adjusted our core EUR-USD forecast lower, as we believe the euro is likely to push past our previous already-negative targets. As a result, a number of our other forecasts have endogenously moved. However, the only other direct forecast shift we have made is to slightly lower our AUD-USD profile. Our expectations for USD-JPY are unchanged, roughly in the mid-90s range for 2010.
Lowering EUR-USD end of year target to 1.15 (from 1.28)
Our core view of extended euro weakness remains unchanged, but EUR-USD has continued to surprise us on the downside and has moved past our original negative targets. While we remain worried about upside short squeezes, we believe the near-term consequences of the sovereign debt crisis are clearly negative. Markets are still clearly expressing skepticism that the debt crisis has passed even in the short term despite recent improvement (Chart 1). The longer-term impact will likely be quite persistent, as the euro’s status as a dominant global currency has been tarnished. The discord caused by having one currency for countries with such different fiscal policies, bond markets and labor markets will not fade despite the time bought by the EU/ECB/IMF aid package. FX reserve managers, who just last year had been thought to be moving away from the USD and toward the EUR for asset allocation, are now reconsidering such a move. As a result, we have also moved our 2011 forecast target to 1.10.
Shifting other forecasts: GBP-USD, AUD both lowerOur forecasts for other European currencies have moved given our shifts in EURUSD. The largest one is in GBP-USD, which we now expect to drop into 1.40-type levels as the euro goes lower, even though we have left our core EUR-GBP forecast unchanged. We have also pushed down slightly our AUD-USD forecast profile. The crisis has definitely hit risky currencies, but our Australia economics team has pulled back on their RBA expectations, looking for only one more rate hike at the very end of the year. The key forecast that has not changed is USD-JPY, which should stay mired in the mid-90s range in 2010.
The US side of FX markets has been (relatively) boring
The US side of the FX story has been relatively uninteresting. Of course, macro data have taken a distinct back seat during the crisis, but the US macro picture has remained fairly stable. Growth continues to amble along at a post-WWII average of around 3.2%. As a growth story alone, USD should remain the clear outperformer in G4, compared to the hobbled Eurozone, the weak UK, and deflationary Japan.
Meanwhile, as expected by our US economics team, inflationary pressures continue to surprise markets on the downside, and confound fears that the Federal Reserve’s expanded balance sheet will result in USD-negative inflation pressures. Rate expectations are of diminished importance to FX markets at the moment, as our economics team does not expect any of the G4 central banks, including the Federal Reserve, to hike rates this year.
EUR: lowering our forecasts
We lower our forecast for the euro, pushing down our year-end 2010 target to 1.15 from 1.28 and our year-end 2011 target to 1.10 from 1.20. The evolution of the crisis has not only been a near-term negative for the euro, but signals poorly for its medium and longer-term future.
Greece is only the start
While Greek debt was the key trigger to the Eurozone crisis, it also shed light on the difficulty of holding a currency together without a similarly unified fiscal authority, bond market or labor market. Market concerns have now shifted toward the broader periphery. The EU/ECB/IMF emergency package announced in the wee hours of Monday, May 14 attempted to buy time for peripheral countries to get their fiscal houses in order, but otherwise did not directly attack debt problems.
Moreover, the disjointed policymaking process, highlighted most recently by Germany’s unilateral move toward banning certain types of short selling, is also a bad sign for the euro. The need for IMF involvement also shows markets that the Eurozone cannot deal with a crisis without outside help. The tightness of dollar funding in Europe, on fears that the sovereign debt crisis could become a banking crisis, signals that the impact of the debt crisis clearly lingers. As a result, we lower our year-end target to 1.15 from 1.28.
Upside short-term risks for EUR-USD
We remain cautious on near-term jumps higher given the lopsided state of positioning in FX markets and heightened sensitivity to possible policy shifts. Oversized reaction to the rumor that China was considering changing their Eurozone bond holdings, its denial demonstrates the vulnerability of currency markets of substantial short-term moves. Thus, we lower our short-term forecast for the end of Q2 from 1.32 down only to 1.26.
Downside risks definitely still lurk
The major downside risk, in our view, is the possibility of debt restructuring. Even now, policymakers have been denying that any forced debt restructuring was even contemplated, as they clearly understand that such a move would be another major short-term market negative. However, ultimately buying time for three years may prove to be insufficient to fix the periphery’s fiscal problems.
Pushing year-end 2011 forecast to 1.10 from 1.20
Our more skeptical view has also led us to push our longer-term 2011 year-end forecast from 1.20 down to 1.10, as we do look for a more extended decline. Elevated wage and price levels in the periphery (Chart 2) point to both a grinding disinflationary environment and the need for a lower currency to regain competitiveness. Moreover, the crisis has more definitively eliminated the euro as a substantial competitor to the USD in terms of being a dominant international reserve currency. FX reserve managers, who have been a key feature in the euro’s previous rise, will likely be far more cautious in allocating assets toward the EUR.
And for JPY fans - bad news: BofA goes all friendo on the yen as well.
JPY: gradual downward trend
The JPY is likely to remain choppy in the immediate period ahead given remaining risk aversion, and then enter a gradual downward trend from midyear. If, as we expect, risk aversion originally triggered by the European sovereign crisis begins to subside relatively soon, rather than persist and undermine global growth prospects, the JPY should restore a gradual downward trend. Improving risk appetite should foster Japanese investors’ unhedged capital outflows and JPY-funded carry trades.
However, subdued US rate hike expectations will probably limit the upside for US market rates, so we expect only gradual USD-JPY gains in coming months. Late in H2 2010, wider US-Japan yield differentials on expectations of an eventual Fed tightening should make it easier to recycle Japan’s current account surplus with unhedged capital outflows. The BoJ is likely to be the last G10 central bank to begin hiking rates over the next 12 months, so the JPY should be popular as a funding currency.
Still-fragile US rate expectations in the near term
Although the recent “crisis mode” has strengthened correlation between JPY crosses and risk aversion indicators, there remains a stable relationship between USD-JPY and US-Japan yield differentials (Chart 3). In view of the downward forces on US growth and inflation from the European crisis, market expectations of US rate hikes have recently retreated significantly. Our US economics team does not expect a Fed funds rate hike until August 2011. Until a receding of the crisis mode leads to expectations of the Fed’s eventual liquidity withdrawal and an FOMC statement language change, the room for rises in US yields should be limited. Therefore, we expect only a gradual upward trend in USD-JPY.
BoJ basically on hold throughout 2010
The BoJ is likely to maintain its current accommodative stance this year. It will shortly introduce a special liquidity provision scheme to support bank lending to selected growing industries. However, a bold quantitative easing is not likely. Over the next 12 months, the BoJ will probably lag behind other G10 central banks in rate hikes. This should leave the JPY as the most attractive funding currency with the lowest short-term rates in the G10 over the next year.
More capital outflows over the next year
The likely passage of the postal services reform bill ahead of the July Upper House election should be medium-term JPY negative as well. Expected shifts of conservative retail investors to postal savings from regional financial institutions, in anticipation of implicit government guarantees, will probably boost portfolios for the Japan Post Bank (Yucho) and Japan Post Insurance (Kampo) in the next several quarters. Both are giant JPY-funded institutional investors and significantly under-diversified at present. Comments from Internal Affairs Minister Haraguchi and Financial Services Minister Kamei, as well as the Japan Post Insurance’s asset allocation plan, suggest a positive stance toward foreign bondinvestment. Thus, they could become stable JPY sellers for the medium term.
BofA doesn't stop there: the momentum chasers also have an "opinion" on the GBP, the CHF, the NOK, the SEK, the CAD, and of course the AUD and the NZD. Full report here.
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When it happens it will be like someone yelled "fire" in a crowded theater.
It will be strange as everyone rushes out of one burning movie theater into another burning movie theater (the dollar) to watch the same movie.
I don't get this, I am baffled. The U.S is bankrupt. Why are people rushing to buy Treausuries and Dollars?
Because their business, in fact their entire world view, depends on maintaining the status quo.
The only constant - change - will be resisted until it is unavoidable.
Yes! These banksters are happy with the way things are now.
There is another reason they push this stuff--they want us sheeple to pretend their paper is somehow important. Classic misdirection!
Call me cynical, but I also have a hard time believing that there is a 'rush' to own Fed pieces of paper. Maybe this 'demand' is partially or totally bogus?
Supply and demand. There is a shortage of dollar supply to delever an immense amount of dollar denominated debt.
That really describes things perfectly Bob. I actually did lol.
Ah, for at the moment, the US$ is the "less worse" of the major currencies. Remember, just before the Euro trashing, the dollars world wide were doing the "best"...C$, A$, NZ$. And even though I happen to believe that the $US is under long term pressure and is in the long term process of loosing the #1 reserveable currency status, once the EUR (EU) started to implode, the old US$ standard, "any port in the storm will do" returned.
Thought experiment, the "good old days." Imagine the Euro fragments, and it's a return to the individual currencies. Possibly the DM, Swissy and several others would again become the old stores of value at the expense of the $US. Mucho new jobs in FX trading! Either way, life goes on.
What perplexes me more however, is why gold has not advanced more, given the realities of the whole lot of the fiat currencies.
G20 Capitulates
(Reuters) - Finance ministers can usually be relied upon to put the best spin on whatever is happening to the global economy.
Not at this weekend's Group of 20 meeting in Busan.
http://www.reuters.com/article/idUSTRE6550SJ20100606
Keep cutting the exchange rate and you will hasten the failure of businesses in USA.
Looks like BofA trying to outdo the rating agencies in beating Euroman when he is down. I thought banks were bastions of discretion. During the U.S. banking crisis, didn't the banking industry warn about saying bad things about banks because they could lead to panic and banks runs. But apparently, it is O.K. for BofA to throw gasoline on the Euro and possibly be a tipping point for panic, chaos, and banks runs in Europe.
No honor among theives.
Or it is all according to plan.
+1.10
I love the sanguine attitude regarding the rest of the world going up in flames. Smug reassurance is being softly given to BofA clients that their money is "safe with us" and "US can decouple". They're missing the obvious "beggar thy neighbor" implications of the slide in the crosses and the eerie parallels to the Great Depression.
If currencies crumble around the globe to the extent that Bof A expects (and it's usually more), can there be any hope of economic recovery anywhere in the world? A massively overpriced Dollar is just the first issue. But an overpriced king dollar in the face of deleveraging US consumers and corporate downsizing is a big unanticipated problem. Can protectionism be too far behind? Can shadow markets for low priced goods in the US be far behind?
But, but wait! How is Obama going to double exports in 5 years with the Euro in the shitter? lol
...slip out the back Jack, make a new plan Stan, batten down the hatches Ben, take another nap Larry
Dump paper and set yourself free Lee
Will the TBTFs ever actually speak of the USDs long-term viability?
Europe needs to entrenched their own TBTFs and have them start bashing the USD and its own debt crisis.
Image is everything, I guess.
With the generous lag of this HFT market that "end of 2011" target should be met like, what, maybe Tuesday?
That is how I see all of this too. Everyone is now trying to own the problem, but act as if it is on the horizon instead of here, now, hoping to put some brakes on the crash some. Not enough foam to prep this runway no matter how much lube you try to bring out.
Every time I come to this site, I feel like I'm in a nightmare that I cannot seem to wake up from!
Morpheus: "Wecome to the Desert of the Real."
Get out of my fucking dream.. :D
Alice Cooper, "welcome to my nightmare"
I've often wondered, if markets can see the future, can't they see themselves seeing the future? And so on. If an outcome is truly inevitable and there is no escape, this recursive process should proceed to its end state immediately.
(Disclaimer: I am a computer dweeb, not an economics dweeb, so that probably makes no more sense than it appears to.)
This whole situation puts me in mind of Schrodinger's cat. The cat is dead and not dead for an absurd theoretical instant. We live straddling this reality right now, the economy is doomed/not doomed.
Heisenberg's uncertainty works here too. All related to the act of "seeing" or "measuring".
Meanwhile, I am just a dweeb, across all classes, who thinks she knows more than she does as a way to feel in control when she is not.
Peace seventree.
Just saying what you "think you know" confers a measure of control. Free thought is the enemy of propaganda.
It riles them to believe that you perceive the web they weave -- Moody Blues
I agree, seems like things will slip to 118 very quickly and any bounce will be short lived as the only good thing they can do to save the EU is QE, which will just speed the process.
The joke continues David Bianco is sending us to S&P 1300 (dont have his EPS estimates off my head) Goldman raises their S&P EPS estimates after the worst May since 1962, and now both their forex or whatever desks come out trashing the Euro. The arrogance and hypocrisy is something that is well documented here on ZH - but what is going on internally research wise at the banks is just historic. The most elementary Great Depression history classifies the downturn of 1937 as when commodity prices ceased to advance and inventory restocking came to and end. Is now any different? It took nearly a decade for that to happen, however the parallels to today are startling. As everyone knows, the only reason the banks are bullish on reflation is to line their pockets and keep the status quo and bonuses going. The reality is now much different. My experience in the market is under ten years - it just perplexes me how some investors who have weathered 20-40+ years actually utilize sell side research and strategy for their own investment theses. I dont get it.
Hmm...
Seems like a Euro short squeeze would do wonders for the Doll... I mean the market.
Can't help but thing they have one last trick up their sleeve.
yup. $913B (wasn't it $997 when it started 10 days ago) Euro stimulus to hit then back to decline, SNB, PBoC...
The guy from the tshirts with the funny hat says buy Euros, you buy Euros.
Me too. Maybe more than one. I keep being surprised. And I bet it is stunningly simple and outrageous, something that will drop our jaws so hard and fast we will be numb at the the impact and the audacity of it.
Before this is all over, the Fed buys everything, the dollar and the Fed become the bad bank, a disposable tissue. You know how folks going bankrupt will go ahead and charge up their cards knowing they can't pay them back, trying to survive until, hopefully, something in their situation changes (find a better paying job, the investment finally pays off, business finally picks up thanks to the new ad campaign)? They tell themselves they will pay it back if they can get back on their feet? The dollar will be that card.
Y'know, this "ratings change" BS from all analysts is getting stale and tiresome. Doesn't matter if they're raising or lowering, it's all a game to cover their asses, because it's too late for their clients to at on it. Lowering it to $1.10? When did they lower it to $1.20? Like 5 minutes ago? You wanna impress me BofA? Don't lower the EUR to $1.10 from $1.20 now. Lower it to $1.20 six months ago.
You beat me to it. B of A lowers 2011 Euro target to 1.10 from 1.20 once it has breached 1.20 and there are 7 months left in the year. They really went out on a limb. The funny thing is some people pay big money for their advice. I have seen monkeys at the zoo having shit fights more organized than the likes of B of A.
Give it a month or so, then revisit your thoughts.
Updated DOW charts :
http://stockmarket618.wordpress.com
http://www.zerohedge.com/forum/latest-market-outlook-1
Gosh, this might be relevant. Holy shit!
Iran Selling 45 Billion Euros of Reserves for Dollars
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a4lkmEhesqLc
if thats not the impetus for our short squeeze
you can't script this stuff, crazier and crazier
The bad news is that this is going to give the loonies at the fed more ammunition for QE 2.0
Tar balls mean mucho jobs for the US! Go Team Obama!
EURO 2010:
http://williambanzai7.blogspot.com/2010/06/euro-sticker.html
SWEEP THE LEG!
Q.E. On, Q.E. Off.
Q.E. On, Q.E. Off.
How will markets react when the Chinese imply the Americans sunk the Korean Corvette Cheonan (loss of 46 lives) so they could keep their base in Okinawa?
http://www.atimes.com/atimes/Korea/LF04Dg02.html
I dunno enough by Chinese culture to say whether we should laugh at them or laugh with them, in this case.
US hedge funds dump Australian bank shares
AUSTRALIA'S biggest banks have become the victims of aggressive international hedge funds, which are shorting the banks' stocks after growing concern about the strength of the domestic property market.
A New York hedge fund manager, who did not want to be named, said sentiment towards the Australian banks had soured because of doubts that the strength in the national property market would be sustained.
"There's a lot of scepticism in the US regarding the Australian property market," the hedge fund manager said.
"A lot of people have doubts about whether the strength of the market is going to be maintained.
"I think it's the case funds are shorting the banks. If you're of the view that property is going to come off, then shorting the stocks is a very clean way to express that view. It's an attractive trade."
Westpac is thought to have been targeted most heavily by hedge funds because of its large residential mortgage book, which has grown rapidly over the past two years.
http://www.theaustralian.com.au/business/us-hedge-funds-dump-australian-bank-shares/story-e6frg8zx-1225875702144
What is special about Australia? I think someone didn't play ball the way they were supposed to and are now getting punished. I mean shoot, short Canada, makes as much sense...
Euro Is Dead
The single currency is in its death throes and may not survive in its current membership for a week, let alone the next five years, according to a selection of responses to the survey – the first major wide-ranging litmus test of economic opinion in the City since the election. The findings underline suspicions that the new Chancellor, George Osborne, will have to firefight a full-blown crisis in Britain's biggest trading partner in his first years in office.
http://www.telegraph.co.uk/finance/financetopics/budget/7806064/Euro-wil...
Quote of the Day
Investors should keep their seat belts on and tight.
Mohamed A. El-Erian is CEO and co-CIO of PIMCO.
http://ftalphaville.ft.com/blog/2010/06/05/252661/guest-post-el-erian-on...
"G-20 is best means of global governance" or close there to in El-Erian's Friday (?) FT column. Confirmation PIMCO's one of the anointed NWO financial supplicants, eh?
and now for some ZH good news: your mother is a hamster.
If the G20 ministers essentially told Timmay to go S*** in his hat about QEII, isn't that bullish for the euro or at least bearish for the dollar?
If you want to help kill the euro.
If euro is heading to 1.1 then gold will go to 1108 euros.
All you gotta do to make it happen. Is gut your 401k. Kill your bank account. Trade euro for physical gold. The more people do it. The worse euro tanks. Driving more people to do it tanking it further.
You can say it's too late they already tanked our savings from 1.50 to 1.22. They'll stop at 1.10 for a short time but they'll head for parity with dollar next month. Save 20 percent of your purchasing power. Buy gold.
I wonder what their reasoning is behind the 1.10 prediction. That means it has to rise in 2011 to hit that level, right?
;-)
Lots.
Determinism is a derviate of indeterminism which is an integral of determinism. So you can terminate to determine the indeterminal internment. But only for short periods of time.
http://www.youtube.com/watch?v=WgPePk3kGZk
Too continue a bad idea. All you have to do is be told that you are smarter than the previous people who failed it.
Would someone please post the number of outstanding EUD contacts? Wondering how much of this is book talking....albeit on a rather large scale.