First Goldman was stopped out on the bullish EUR call, now it appears that the firm is about to be stopped out for a second time, less than a week after its revised, bearish call on the EUR currency. This will likely be the second time the newly relocated bank will be massively wrong about the direction of the EURUSD in the span of a month. With the stop out at 1.35, and the euro almost hitting that earlier today, could we see this trade unwinding as early as today? In the meantime, Goldman will have made massive profits on both trades, even as its biggest clients lick their wounds and wonder what the hell just happened.
Let's recall what the GS FX research desk disclosed on March 24, or last Wednesday:
Slightly less than two weeks ago we initiated a long EUR/$ trade recommendation on the basis of three factors. First we anticipated a notable improvement of cyclical growth news in the Eurozone, second we highlighted the continued USD negative BBoP flows and finally, we assumed that the Greece risk premium in the Euro would stabilise and decline.
While broadly correct on the cyclical news, where the latest round of European business surveys point to strong momentum, we have clearly underestimated the impact on the EUR from the European sovereign crisis and perhaps also from the broader macro adjustment that it portends. The latest developments suggest the building consensus among Eurozone members is becoming increasingly difficult. These political headwinds currently matter far more for the Euro than the cyclical factors.
We were stopped out of EUR/$ for a potential loss of 2.8% (opened at 1.3740, closed at 1.3350). Given we also carry significant EUR/$ exposure in our short $/PLN recommendation, we decided to also close this idea for a small potential gain of 0.6%.
There is nothing quite as rewarding on rainy Monday mornings as knowing that your primer broker-cum-monopolist banker is looking out for you.