This page has been archived and commenting is disabled.
Goldman Slashes EURUSD Forecast To Parity
Via Goldman Sachs,
We last made a meaningful downward revision to our EUR/$ forecast in August, just after ECB President Draghi’s speech at Jackson Hole. At the time, our message was that EUR/$ has begun a protracted weakening trend, reflecting cyclical underperformance vis-à-vis the US and a more activist ECB, which would take the single currency to parity versus the Dollar by 2017. We are revising down our forecast further today, to 1.14, 1.11 and 1.08 in 3, 6 and 12 months (from 1.23, 1.20 and 1.15 before). We are also revising down our longer-term forecasts, bringing the end-2016 forecast to 1.00 (from 1.05) and that for end-2017 to 0.90 (from 1.00). These changes underscore our view that the recent slide in the single currency is part of a broad trend, which will see EUR/$ undershoot 'fair value' (around 1.20) on the weak side.
We are revising our EUR/GBP forecast in a similar manner, to 0.75, 0.74, 0.73 in 3, 6 and 12 months (from 0.77, 0.76 and 0.75), while keeping the end-2016 and end-2017 numbers unchanged at 0.70 and 0.65, respectively.
More broadly, our conviction in the strong Dollar theme has grown. As part of that, and also reflecting the drop in oil prices, we are revising our outlook for the commodity currencies weaker. We revise our AUD/$ forecast to 0.79, 0.77 and 0.75 in 3, 6, and 12 months (from 0.83, 0.82 and 0.79), with our end-2016 and end-2017 forecasts also at 0.75. We revise our $/CAD forecast to 1.19, 1.20 and 1.22 in 3, 6, and 12 months (from 1.13, 1.14 and 1.15), with our end-2016 and end-2017 forecasts at 1.24 and 1.26.
The sovereign debt crisis in Europe arguably ended mid-2012 with President Draghi’s important “whatever it takes” speech and the subsequent creation of the OMT program. However, a growth and competitiveness crisis continues unabated, and this forms the backbone of our EUR/$ lower view. Exhibit 1 shows the average drop in the real effective exchange rate across nine emerging market crises in number of months from the start of the crisis at t. It shows that emerging markets have tended to see real devaluations of around 30% during the kind of balance of payments crises that the Euro periphery has also seen (a sudden stop to capital inflows that financed large current account deficits). Meanwhile, real exchange rates on the Euro periphery have stayed high, even with the recent slide in EUR/$, so that the kind of competitiveness boost that emerging markets tend to see post-crisis remains elusive.
At a very basic level, we draw two lessons from this: (i) deflation in the Euro area has a structural element, given how high periphery price levels still are; and (ii) given still high periphery price levels, the kind of growth rebound typical in emerging markets is unlikely, as Exhibit 2 shows.
This sets the stage for protracted cyclical underperformance vis-à-vis the US (Exhibit 3) and deflation / disinflation, which our persistence-weighting makes out to be the most severe in the G10 (Exhibit 4), even before recent sharp falls in oil prices. As a result, we see the recent slide in the single currency as part of a broad trend, which will see EUR/$ undershoot 'fair value' (around 1.20, based on our GSDEER model) on the weak side for a protracted period. In particular, we think that if ECB policies manage to convincingly raise inflation expectations, EUR/$ may fall more than implied by nominal rate differentials.
At the same time, we have gained conviction in our Dollar bullish call. Our view has been that the fading of Fed forward guidance is an important positive for the Dollar, because it allows front-end US interest rates – the main driver of the Dollar versus the majors – to rise. Exhibit 5 shows that the Dollar strengthened following both the September and December Fed meetings, which downgraded the “considerable time” language. In September, Chair Yellen emphasised the Fed’s data dependence during the press conference, while in December she ruled out lift-off for “a couple of meetings”. Of course, the recent drop in oil prices may mean that the Fed could delay the timing of the first rate hike, which our US economists flagged this week. At the same time, this week's FOMC minutes showed that the Fed is taking a relatively benign view on the fall-out of Dollar strength for the economy. Overall, we continue to see the fading of Fed forward guidance as a Dollar positive, which should continue to see the 2-year differential converge higher towards the forwards (Exhibit 6).
As part of our growing conviction in the Dollar, and also reflecting recent oil price declines, we are revising our outlook for the commodity currencies weaker. We are marking down our AUD/$ forecast to 0.79, 0.77 and 0.75 in 3, 6, and 12 months (from 0.83, 0.82 and 0.79), with our end-2016 and end-2017 forecasts down to 0.75 (from 0.79 previously). We are revising our $/CAD forecast to 1.19, 1.20 and 1.22 in 3, 6, and 12 months (from 1.13, 1.14 and 1.15), with our end-2016 and end-2017 forecasts at 1.24 and 1.26. On a trade-weighted basis, the combination of our forecasts sees the Dollar strengthen around 7.0% versus the majors over the next year and cumulatively by 18.5% by end-2017. We expect the Euro to weaken around 5.0% on a trade-weighted basis versus the G10 over the next year and 15.7% through end-2017.
»
- 11259 reads
- Printer-friendly version
- Send to friend
- advertisements -
...
Goldman Bichs ain't alone in calling this.
The world hits parity end of '16...Lloyd finally sprouts his horns...TPTB introduce the digital "Globo" currency...the Pacific Ocean turns to blood.
Oh, and fuck Goldman and ALL the shitheads who "work" there
There goes my plan to short this all the way to parity. Thanks a lot, jackasses.. You need to stop printing Goldman predictions, it causing a lot of changes in my trading strategy.
Agreed. I just can't trade at all until I know what Goldman's strategy is.
/sarc/sarc/sarc/sarc/sarc/sarc/sarc/sarc/sarc/sarc/sarc/sarc/sarc/sarc/sarc/sarc/sarc/sarc/sarc/sarc/sarc/sarc/sarc/sarc/sarc/sarc/sarc/sarc/sarc/sarc/
If the past is an indication of the future, it can be a great contrarian indicator.
Makes me think ECB will not start QE.
thanks for sharing bozos
Well forecasted, Vampire Squid Firmly Attached To The Face Of Humanity. sounds a bit like purity, this parity. Or a prayer I heard, once
Hate the usa huh? Why you buy all the dollars then?
The dollar will be at 1.20 by the end of 2016.
That's a good one.... Care to make a wager?
Sure? Want to swap penis?
get a room...
No, but I'll bet you a lunch. There is no way .gov will want the USD/Euro at $1.20 That would kill what little exports we have left.
All kidding aside. There is no other safe haven left for the average joe. When SHTF within the next two years, the dollar is the only thing people will understand. ESPECIALLY the retired and elderly, which are getting a larger portion of the pie, on the daily.
Also, I'm talking about the $ index. Not the USD to EUR.
EUR/USD/GBP ... all a competition for the Least Stinky Turd Award.
Soooo.... sell dollars and buy Euros..... Got it!
Goldman coming in line with other parity predictions.
Should be easier to link them up when it's USDEUR 1.0 shouldn't it?
The Squid junkers are hanging out today.
Junk this, squid
heelllp
there's a squid in my junk
EXTRA! EXTRA! READ ALL ABOUT IT!
Cannon fodder for the muppets, Goldman goes long EUR/USD while saying they are going short!
https://www.youtube.com/watch?v=IGYaFMFU63U
Is this supposed to be analysis? There can be no way they're that dumb.
Squid is putting the pressure on the elite in Europe. Welcome to WWIII.
Only if buying foreign or selling domestic - xtall ball gazing to prime the herd to stampeed in the right direction.
Europeans have so many reasons to love Goldman Sachs.
and the reasons keep getting more and moar
One would think the folks at GS would be paying attention to the market open rather than on ZH downvoting.
HFT's have that covered, plenty time for junks.
that's just Alan Greenspan, hes got nothin to do now that hes retired but spend his days downvoting and junkin on the Hedge.
Where's the love Alan?
His down votin has been particularly frothy and maybe overvalued but is unlikely to decline in a meaningful way as the business cycle has been overcome and we are in a new period of investment without risk, this time it IS different.
Ole Old Greenie, 0% chance of US default, just print more. Sheer genius. Tell Charmin and Angel Soft to plan ahead, next competitor USD.
http://www.forbes.com/sites/johntharvey/2012/09/10/impossible-to-default/
"The sovereign debt crisis in Europe arguably ended mid-2012" - I will take that argument....on second thought.
“Never argue with stupid people, they will drag you down to their level and then beat you with experience.” -Twain
on the first and second thoughts "never argue with stupid people" and "they will drag you down to their level" i kind of had second thoughts so far ....
however, when he states "and then beat you with experience" definitely something to remember ... i dont like to lose :)
actually we kind of practice it in every day life however, when is layed out like that makes it easier to follow.
Good quote. This is one of best benefits of ZH it provides the platform of exchange communications
Vampire Squid doen't know shit; we need Stolper & Gartman to weigh in and we will then know with certainty where it isn't going.
www.traderzoo.mobi
So, what do readers here think this means for real estate in Europe, e.g. London or Paris? Of course, cheaper relative to a dollar for Euro exchange, but what do people here think this means for actual prices of real estate within these two cities?
Goddam Suckers is talking long dollar
.....Short it to bits, got it....
forecast for end-2017
Hilarity ensues. Can we haz forecast for end-2024 too?
The ghost of Tommy Stolper is alive and well at the Squid HQ.
Hmmm so the squid sees a gradual decline to parity? Funny that after good jobs data (yes I know wage growth sucked but it has since 1999) the markets did.....nothing. In fact the 92.38 area held rather well I'd say on the Dollar index. Funny no one sees a sideways to up pattern in the EURO for the next six months or so? Sort of like 2012-13? Funny.....