Euro Dollar Rate Forecasts for 2014-2015 - page 16
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EUR/USD: Ignore The Noise; Stick To Fundamentals: 0.95 in 12 months – Goldman Sachs
The Greek crisis, with all its ups and down is certainly moving markets, as we have seen with the recent spikes.
Nevertheless, the team at Goldman Sachs says we should follow the fundamentals and not the noise, and this implies a strong movement downwards.
Here is their view, courtesy of eFXnews:
Following yesterday’s FOMC meeting, Goldman Sachs US Economics team changed its central expectation on the timing of the first hike, which it now expects in December. From there, they expect the FOMC to raise rates by 100bp per annum, with the Fed Funds target range reaching 1.25-1.50% at the end of 2016 and 2.25-2.50% at the end of 2017 – roughly half way between the dots and the forwards.
“Strengthening economic data and rising asset prices will, in our view, lead the market to revise its pricing for the tightening cycle towards the FOMC median profile, i.e., re-building some risk premium,” GS argues.
As such, GS maintains its structural bearish view on EUR/USD arguing that despite its recent rise, fundamentals will ultimately take EUR/USD down in line with GS’ long-term forecasts.
“Our EUR/$ down view hangs on fundamentals. Here, our view is that the “growth crisis” in the Euro zone means that inflation will be slower to pick up than during a normal cycle, in line with projections from our European team that show HICP inflation reverting back to target only slowly. The reason for this is that structural reforms on the periphery (in labor and product markets) may hold down inflation for a given level of the output gap, which could reflect the Phillips curve shifting down.,” GS argues.
“Exhibit 4 shows some evidence for this, where the horizontal axis gives the unemployment gap – we use an eight year moving average to proxy for structural unemployment, which puts that around 10 percent currently, in line with our European team estimates – and core HICP inflation is on the vertical axis. Core inflation since early 2014 has shifted down for a given unemployment gap,” GS clarifies.
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Goldman Sachs which is long on Euro (according to CFTC data) long time ago, is at least hypocritical to advocate 0.95 for EURUSD - or straight fraudulent
EUR/USD: Euro to Lose Ground After Greek Deal Euphoria Fades - Intesa, Goldman
The euro lost ground overnight after the emergency Eurogroup meeting failed to deliver any immediate resolution for debt-ridden Greece on Monday, while market participants see the Greece-driven euro optimism as short-lived.
"Even if the Greece will get the financing it needs from its European partners, support for the euro will be temporary," Ladislav Benedek, senior currency strategist at Intesa Sanpaolo in Bratislava, said for WBP Online on Tuesday.
"I expect the short lived euro optimism to be soon reversed as policy divergence between euro zone and the US shall prevail," Benedek predicted further.
With Greece submitting fresh proposals to the Eurogroup meeting on Monday, markets positioned in favor of the common European currency, with the euro exchange rate touching the $1.14 mark early on Monday.
News of a deal not being struck on Monday saw the euro slide lower to the $1.13 area, but it was a Goldman Sachs comment that finally undermined the value of euro, bringing it down about 100 pips to $1.1240 area early morning on Tuesday.
Euro zone manufacturing and services PMI activity rose above expectations in June, but in terms of currency reaction the euro only received a short-lived boost toward the $1.1280 area, before trading at an intraday low of $1.1230, down 0.92% on the day.
Goldman Sachs Group said earlier on Tuesday that the European Central Bank’s quantitative easing program would send the currency toward parity against the greenback, even in the event of a debt deal for Greece.
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Goldman Sachs on what Greece means for the euro
Goldman Sachs on why they remain euro bears
In a special note to clients, Goldman Sachs discusses the puzzling EUR/USD price action over the past few weeks as Greek tensions have mounted.
Goldman argues that much of this price action stems from the Bundesbank, which has reduced the maturity of its QE buying, enabling the Bund sell-off and moving longer-dated rate differentials in favor of the euro and as such Goldman thinks that 'EUR/USD hasn't traded Greece, but instead growing question marks over ECB QE'.
Here is how how Goldman discusses what Greece means from an economic perspective and for EUR/USD along with its latest forecasts for the currency pair.
"From an economic perspective, Greece shows that "internal devaluation" - whereby structural reforms are meant to restore competitiveness and growth -is difficult politically and a poor substitute for outright devaluation. Emerging markets that devalue during crises quickly return to growth, powered by exports, while Greek GDP continues to languish. We emphasize this because - even if a compromise involving a debt haircut is found - this will not do much to return Greece to growth.Only a managed devaluation, with the help of the creditors, can do that," Goldman Sachs argues.
"With respect to EUR/USD, we think the Bund sell-off increases EUR/USD downside if tensions over Greece escalate further. This is because the ECB, including via the Bundesbank, would almost surely step up QE to prevent contagion.We estimate that the immediate aftermath of a default could see EUR/USD fall three big figures. The ensuing acceleration in QE would then take EUR/USD down another seven big figures in subsequent weeks," GS adds.
"We thus see Greece as a catalyst for EUR/USD to go near parity, via stepped up QE that moves rate differentials against the single currency," Goldman concludes and maintains its EUR/USD forecasts at 0.95 in 12 months and 0.80 by end of 2017.
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Is It Time To Sell EUR/USD Again? – Credit Agricole
EUR/USD has lost some ground despite optimism about a resolution for Greece. Is it going back to fundamentals?
The team at Credit Agricole discusses the state of the pair:
Here is their view :
As relief rallies go, The reaction in EUR/USD to the latest signs that Greece and its creditors are inching closer to a deal is rather underwhelming.
This could be due to lingering uncertainty about the deal. Indeed, various media reports have highlighted creditors’ concerns that the new proposal is putting too much emphasis on new taxes (on both businesses and households) to balance the books. Excessive taxation could hamper the Greek economic recovery and make the proposal less credible.
In addition, there are concerns that the proposed VAT and pension reform could erode the support from Syriza’s main coalition partners – the Greek Nationalist – when the measures are put for a vote in the Greek parliament.
While investors’ cautiousness could explain some of the recent EURunderperformance, the contrasting response of the FX and the European stock and peripheral bond markets may also indicate that investors have moved away from Greece to re-focus on the lingering policy divergence between the increasingly hawkish Fed and persistently dovish ECB. Indeed, a Greek resolution will arguably make it easier for the FOMC to hike rates as soon as September.
At the same time, the ECB remains very committed to QE and this should continue the make the EUR an attractive funding currency.
In addition, we suspect that renewed inflows into the Eurozone stocks and bondd could lead to renewed selling pressure on EUR in the forward markets.
The above could suggest that EUR/USD could be offering attractive selling opportunity at current levels.
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I don't think that it is still a selling opportunity - as long as the Greek crisis is not over, I do not plan to take long term positions
Trading Greece: EUR’s Reaction Function – BNPP
Another round of discussions has ended without an agreement and June 30th is getting very close.
However, reactions in EUR/USD have not always been straightforward. What is the reaction function? The team at BNP Paribas analyzes:
Here is their view :
In a special note to clients today, BNP Paribas discuses the EUR’s reaction function as investors are getting relatively optimistic view surrounding the likelihood of a Greek ‘resolution’ before the end of this month.
BNPP’s long-held view is that good news on Greece is not good news for the EUR expecting the EUR to remain under pressure going forward. Here is how BNPP explains in details the dynamics constituting this related EUR reaction function.
1- “Nervousness about Greece had contributed to a short squeeze in the EUR. BNP Paribas Positioning Analysis highlights that the EUR’s rally corresponded to a substantial lightening of short EUR positioning,” BNPP notes.
2- “A resolution to Greek uncertainty boosts risk appetite and, given the EUR’s status as a funding currency, encourages risk taking funded in the EUR. This is the key reason why good news on the Greek situation is bad news for the EUR and, with short EUR positioning at light levels, there is scope for additional downside,” BNPP argues.
3- “If Greek discussions were to deteriorate again we expect the EUR to initially squeeze higher as the recently established short positions are unwound amid a risk-off backdrop. Beyond a squeeze, however, the EUR is likely to decline,” BNPP adds.
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EUR/USD to 1.05 in 3 months – Credit Suisse
EUR/USD awaits developments in Greece after the dramatic referendum announcement. Looking at the wider picture, there aren’t reasons for EUR bulls to be very cheerful.
The team at Credit Suisse analyzes the situation and maintains its low target for the pair:
Here is their view :
“In this context, the seemingly inconsistent behavior of the EUR stands out, with a kneejerk rally on Monday being more than reversed by a sharp sell-off after. For us, this is reflective of a theme, namely the EUR’s relatively new status as a funding currency,” CS argues.
“In broad terms, the fact that the market had large short EUR / long carry positions on for some months before the Greek news flared meant that any sudden risk-off event on the back of bad news from Greece could have potentially led EUR much higher while position squaring accelerated,” CS clarifies.
“So the passage of Greek risk would actually remove a major impediment for holding or adding to EUR shorts. Similarly, even the idea of a knee-jerk pop higher for EUR on good news on the Greek front was a factor that arguably led investors to avoid short EUR positions until greater clarity was available and / or the “pop” had already happened. In this sense, EURUSD’s jump towards but failure to push beyond May’s highs near 1.1500 on Monday is an important signal,” CS argues.
On the other side of the coin, CS notes that US data continue to surprise positively, with housing data this week especially comforting.
“Our US economists still believe that the US economy has sufficient momentum to bring about a Fed rate hike in September, something rated as only 50:50 by the market,” CS adds
“Still, with euro area data also surprising to the upside, the argument for a rapid decline in EURUSD is not strong now, and we do not look for a break to new lows in the pair any time soon,” CS projects.
CS 3-month target for EUR/USD remains at 1.05.
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I wouldn't bet that Euro is going to go down. FED is doing everything it can to prevent that
Euro in Freefall as Greek Banks to Remain Closed on Monday