Goldman Sachs: The FOMC does not target the Dollar - the Dollar story is over, and GS targets EUR/USD at 1.00 in 6-months and USD/JPY at 125
29 April 2015, 18:11
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"There is now a feeling that the Dollar story is over,
because any further appreciation will just cause the Fed to shift in an
even more dovish direction, delaying 'lift-off' further and further. GS'
Jan Hatzius and team expect activity to bounce back sharply this
quarter rising from a likely pace of 1.2% quarter-over-quarter in Q1 to
3.5% in Q2. We think this rebound will break the infinite loop the
market currently expects and means that, however reluctantly, the Fed
will likely do 'lift-off' later this year".
"We think this means that the Dollar still has lots of room to
strengthen, not least with market pricing for front-end interest rates
as low as it currently is. We continue to forecast a 20% rise against
the majors over the next three years".
This means that we see data, not the Fed, as the next key catalyst for the Dollar to resume its march higher, as it becomes clear that weak Q1 activity was once again an aberration. Surprises could come in the form of language describing recent data weakness as "temporary", which would be seen as hawkish by the market. Language ruling out June for 'lift-off' would be seen as a dovish surprise.
GS targets EUR/USD at 1.00 in 6-months and USD/JPY at 125 over the same end of period.
