This page has been archived and commenting is disabled.
Goldman Slashes EURUSD Forecast To 1.20
Having flip-flopped from forecasting EUR strength for the next 12 months in April (target 1.40), Goldman has rapidly ratcheted down its expectations for the flailing currency to 1.30 previously and now forecasts EURUSD at 1.20 in 12 months. As Goldman notes, "because we believe the dynamics of the Euro have fundamentally changed and because we expect cyclical outperformance of the US, a prolonged period of Euro undervaluation can be expected and this is reflected in our longer-term forecasts." Trade accordingly...
Via Goldman Sachs,
1. We are revising down our EUR/$ forecast to 1.29, 1.25 and 1.20 in 3, 6 and 12 months (from 1.35, 1.34 and 1.30 previously). We are also revising our longer-term forecasts lower, bringing the end-2015 number down to 1.15 (from 1.27), that for end-2016 to 1.05 (from 1.23) and that for end-2017 to 1.00 (from 1.20). We switched from forecasting Euro strength to weakness in April, when we revised our 12-month forecast from 1.40 to 1.30, and the decline since then has been faster than we anticipated. Our latest forecast change aims to signal that the current move lower in EUR/$ has staying power and, in our view, is the beginning of a trend.
2. This forecast change is very much a restatement of our bullish Dollar view. Indeed, because we are keeping our EUR/CHF, EUR/GBP, EUR/NOK and EUR/SEK forecasts unchanged, this change is disproportionately important for our trade-weighted Dollar forecast. When we first switched to forecasting Euro weakness in April, this implied a 6% appreciation of the trade-weighted Dollar against the G10 on a 12-month horizon. Since then the Dollar has appreciated about 3%, i.e., about half that, thanks in large part to the drop in EUR/$. Revising our 12-month EUR/$ forecast to 1.20 implies a trade-weighted appreciation of the Dollar against its G10 peers of a further 6%. We think the USD still has room to catch up with the 2-year rate differential, which is currently the most Dollar-supportive since mid-2009 (Exhibit 1). In addition, changes to the Fed’s forward guidance in coming months have the potential to move the rate differential further in support of the Dollar (Exhibit 2), especially if US data continue their cyclical outperformance versus the rest of the G10.
3. We also believe that the dynamics of the Euro have fundamentally changed. Prior to the ECB’s latest round of easing in June, the foreign exchange market was very sceptical that additional monetary stimulus could be Euro-negative, since it would attract foreign inflows that would buoy the single currency. That thinking has changed fundamentally, in our view, not because foreign portfolio flows into the Euro area have abated (Exhibit 3), but because domestics are increasingly sending portfolio flows out of the Euro area, as ongoing ECB easing encourages a hunt for yield elsewhere (Exhibit 4). Our view is that these portfolio outflows have much greater potential to grow than foreign flows into the Euro area, given that periphery risk premia are already so compressed. Key pushbacks to our view are that: (i) speculative short Euro positioning is already very stretched, with the CFTC’s CoT report for example putting positioning now on a par with 2011/12, when concerns about a potential Euro area break-up were very real; and (ii) the view that the ECB is de facto on hold, as it implements easing measures announced in June. As we have argued in a recent FX Views, the large size of foreign portfolio inflows into the Euro area over the last two years likely means that the CoT report overstates speculative Euro shorts, which we see as moderate in the scheme of things. As far as ECB policy goes, we think there is – counter to market consensus – plenty of room for President Draghi to 'talk' the currency lower, which he notably started to do in the August press conference when he said that “fundamentals for a weaker exchange rate are today much better than they were two or three months ago”. Reinforcing his comment, we estimate that the fair value for EUR/$ is around 1.19. Therefore, even with the depreciation of the Euro in recent months, it is still expensive. Because we believe the dynamics of the Euro have fundamentally changed and because we expect cyclical outperformance of the US, a prolonged period of Euro undervaluation can be expected and this is reflected in our longer-term forecasts.
4. Our 12-month EUR/$ forecast of 1.20 implies a 5% weakening of the Euro on a trade-weighted basis versus the G10. With our 12-month forecast for EUR/GBP unchanged at 0.75, this amounts to a downgrade to our GBP/$ view, with the 12-month forecast now 1.60 (from 1.73 previously). As a result, we are now expecting somewhat less appreciation of Sterling, with the trade-weighted index rising well below 5% on a one-year horizon, down from 6% earlier this year.
* * *
Bear in mind this is Goldman Macro not the FX team (ex Stolper)...
* * *
The herd chimes in:
- *JPM CUTS 1Q EUR/USD EST TO 1.28 VS 1.30; 2Q EST TO 1.26 VS 1.28
»
- 9413 reads
- Printer-friendly version
- Send to friend
- advertisements -
Joseph and Mary - it should have been at parity with the Dollar back in 2009.
Rrrriiiigggghhhhttt Because the US is exceptional? Perhaps as a banana republic, coming soon.
Um.. bullish?
oh.. now I got it -- GS and all the rest there are bullish-it.
Stawwks are insane today.......WTF
Goldman says it´s going down? That means it will hit €1.40 soon enough....and they will be makng money on the trade.
So, go long Euro? Where is the Kermit picture?
No, because they are equally insolvent.
LOL Fade that.
if GS says EUR/USD to drop, that means there is 0.00% chance of any ECB money printing. bad for stocks. plan accordingly as the Fed continues to "taper".
If it looks like heavy metal and sounds like heavy metal...it's probably heavy metal.
Should be great for US corporate profits in Euroland.
Arrest Loyd Blankfein and Jamie Dimon for stealing everyone's F'n money and causing WWIII. Prosecute them for war crimes.
I forcast the euro to be somewhere around 0.0.
Not saying when, but it will get there.
Shit, so the dollar is about to be crushed again. Thanks GS.
In other words, the Euro should strengthen again... ?
Exactly (as said by Billy Bob Thornton)
If true, going to be a deflationary shock in US as USD moves yells screams higher.
That is the real issue isnt it. Europe will export their deflation here. But this should not surprise anyone. We are in a deflationary environment. Their deflation is worse than ours. As a result, their currency will APPRECIATE ceteris paribus. Of course ceteris is never paribus. The downside risk is twofold. One the ECB prints like fiends. Not that big a risk as Germany will be hesitant to let that happen, epecially compared to the happy keynesian money printers here. Second the euro could simply fall apart as multiple countries leave. In that case it will depend which countries. If the Euro becomes the new Germany centered currency, because peripheral countries have left, then it probably holds its own. If it is Germany that leaves, then the Euro devalues. Same calculus as a few years ago. But it will likely act like the yen did for awhile first, that is it will strengthen relentlessly as deflation makes it worth more and more over time.
Does the Fed have a new tractor?
ES_F ramped up as EURUSD ramped down 3 seconds sooner.
USDJPY was unchanged during this manipulation.
X 50% to the 4th power
Time to short the USD. Who is the new Stolper?
Heads up. Close your shorts now, EURUSD rally imminent.
The U.S.-centric view is alive & well - i.e., nothing will touch $Dollar hegemony, for ever and ever. I would venture a guess that a few more dust ups with U.S. reconnaissance aircraft in the South/East China sea and a few more threats of 'sanctions' against Russia could quite possibly 'alter' the Marc Chandler-esque outlook of the $DX.
So, I will start to think to go long!!!!!!!!!!!!!!!!
So, I will start to think to go long!!!!!!!!!!!!!!!!
1:1 EUR/USD would be nice :)
is this all due to the sanction on russia?
Confrontation is possible. You'll have to let the White House, Europe and Putin explain that one though. It's certainly beyond my ability to comprehend.
I'm not sure I understand this. So we have the USA tapering and we have the ECB not QEing; but the Eurozone is somewhat more deflationary than the US, so if I'm reading this correctly it ought to result in Euro strengthening. Don't get me wrong, I've been arguing that deflation would occur in the USA for about 6 months now and this Euro signal, if correct, would actually support my own position; nevertheless, I am unable to see just how Goldman is making the case with this set of facts.
GREAT TIME TO BUY THEN... ANTI MUPPETS
Connecting the dots:
Germany Schaubel says no to printing, and next Goldman Sachs says short the EURO.
Germans never bluff. They do not understand bluff.
The only way Goldman is not fleecing the muppets is in case Germany goes to the DM soon.
BULLISH DOLLAR VIEW???
Those guys are the best at misleading generations of unsuspecting people. There are four things which are driving the exchange rate.
1. Trade / and external debt position
2. Capital flows/ Internal credit quality (goes with Capital flows).
If you print too much money (and the US did that since the 1970s) you end up with internal price rising faster than your trading partner. That is explained by Henry Thornton in his second book in 1810 when the pound was a paper currency (until 1821).
The results are:
a. losing on the terms of trade
b. trade deficit
c. weakening currency
d. in irredeemable currency (USD) that means large external debt.
Capital flows
In the old system the capital flows were constrained by redeemability feature as well. In other words people in teh UK willing to buy Argentina´s bond would send domestic interest rates in the US higher and would as a result defeat the speculative flow from UK to Argentina. So a South-east bubble flow in the 1990s would be self-defeated because it would have removed monetary base (gold) from NY. So no carry trade continuation because NY rates would rise. Not so today.
Today the carry trade does not self-defeat, so it depends on teh situation of the FED´s interest rates. So if The FED´s interest rates rise in real terms, it could effectively act as an end to carry and bring dollar strength and pull the rug under emerging market. Except that the internal credit of the US is so bad, that the interest rates in teh US can rise but need to stay much more negative in real terms tahn many emerging nations.
Conclusion: The trade data is not supportive of teh US (while EU still has trade surplus), and the US can not tolerate positive interest rates. Now Maybe the EU will have more negative real interest rate, but this would require a signal that Germany is willing to print.
BTW: The turmoil organized in Ukraine is to put Germany on its knee and join the print fiesta. That is why we have now a Rothschild former banker as economic minister in France: To Push for money printing.
I noticed the Rothschild angle in France as well. Really comes down to Germany again to act. Putin is offering an exit from USD hegemony which made Germany an American lapdog and France is putting the gun to Germany's head to agree to more reparations (Germany essentially paying for France's failed socialist policies).
Germans have been pretty subdued about the whole mess so far. Any government that would agree to printing and diluting the currency would be short lived. It would also initiate a legal frame for an exit from the EUR and possibly the EU.
This should come as no surprise. Supermario let this slip in a speech when he was asked about Euro strength and where he thought the Euro should be.
Goldman is being tentative according to this analysis... Parity is likely not that far off.
http://www.globaldeflationnews.com/u-s-dollar-indexelliott-wave-historic...
Where does that put the Swissie and oil goes to $75?
I call bullshit.
ECB = Draghi = GS
No QE and more defaults instead.
France is Spain is Italy is Greece.
Sounds like JPM has the pre-memo from Draghi that QECB is a go.
And the memo itself is written by Goldman-Sachs. It's not too far away to assume that GS already knows what will happen that very day.
"the only sane thing to do at this stage is to stop trading the usd" (my wife - she knows shit in economy but she nailed it square imo)
Humm time to cover my shorts then!
Fiat currencies outside the US will have to weaken and then fail first...
You know what that means, right kiddies??
A stronger dollar, in the near-term at least, before the final crash.
God...
I guess I make 10 times more, yoy(% wise), than any of those clowns in the "macro" team, and I have no fckin' clue where euro will be 2 months from now...
You don't become member of the macro-team because you're a genius in trading and predicting. Your task is to rip off your clients from the spare money they have.
Buy time for EUR.
Forex Kong has been long for several days and will continue to add down here.
www.forexkong.com
z
Just do the opposite of what Goldman says and you'll be doing exactly what Goldman is doing!
So, the bottom is near, we may or may not see another 100pips lower but we should be prepared to buy the dip and help Goldman to rip off some kermits...
The lower the Euro the less likely QE will take place. Therefore stocks should weaken considerably, but that's actually not happening in a manner supporting this equation.