At this point in the intervention cycle one would have to be a very brave person to dare to do anything in the FX market: the rules are now changing constantly as the central planners shuffle pieces to avoid giving the impression that the world's financial balance is now hanging by a central bank-woven thread. In the enivronment Goldman's Thomas Stolper has just come out with a lone EURUSD recommendation. We refuse to even analyze what this may mean with regard to Goldman's positioning, suffice to say that Goldman will have to do the opposite to what its clients are trading. However whether it is an initiating or closing trade is unknown. So while the big banks are playing hot currency potato with each other, Goldman now sees the EURUSD rising from the 1.41 range to 1.50, with a 1.35 sto: "US balance of payment pressures and the declining Eurozone fiscal risk premium have been our main G10 themes for some time. The latest evidence re-enforces these trends and suggest EUR/$ can appreciate further from current levels. Other factors, like higher oil prices and monetary policy differences between the inflation targeting ECB and dual-target Fed further strengthen the theme." As to whether this is also merely another attempt to by Goldman to push stocks nominally higher due to real value destruction (plunging dollar) is without question.
From Goldman Sachs:
Our Dollar bearish stance is strongly influenced by a weak US balance of payment position despite strong growth. Supporting this view, the latest TIC data, released this week, shows that the US has experienced a net equity outflow of about $2.2bn in January. This is a notable Dollar negative development, since strong equity market performance, a broader shift back into developed market stocks and consistent positive data surprises in the US during that month would have suggested a much better number. Moreover, the US trade deficit has continued to widen in January to $46.3bn and will likely further widen on the back of a delayed impact from high oil prices.
On the other side of the Atlantic, the Eurozone summit last Friday and the subsequent negotiations on Finance Minister level suggest continued steady progress towards a comprehensive solution of the European sovereign issues, although there are still important details to be decided. In particular, the conditionality put in place for bail-out situations looks binding enough for the fiscally strong countries to commit more funds. The remaining contagion risks from last year’s crisis will likely decline further as a result. With a strengthened mechanism to enforce sustainable fiscal policies in the Eurozone, the likelihood of a new fiscal crisis in the future is declining as well. Overall, a further decline in the Eurozone fiscal risk premium is likely.
These two forces, US balance of payment pressures and the declining Eurozone fiscal risk premium have been our main G10 themes for some time. The latest evidence re-enforces these trends and suggest EUR/$ can appreciate further from current levels. Other factors, like higher oil prices and monetary policy differences between the inflation targeting ECB and dual-target Fed further strengthen the theme.
We would go long EUR/$ at current levels of about 1.4085 for an indicative target of 1.50 and a stop on a close below 1.35.