Latest Goldman Sachs note to clients simplifies the euro's move to parity by year end
Goldies have a note out about how the euro is going to react to both the Fed and ECB meetings
They highlight the market action leading up to the announcement of ECB QE in Jan, saying that while the market knew it was coming, it hadn't fully started pricing in QE until 3 weeks before the announcement;
"It was only with the start of 2015 that markets began to aggressively price QE. EUR/$ fell from 1.21 to 1.16 in the three weeks ahead of Jan. 22, such that the bulk of ECB QE was priced by Jan. 22 (EUR/$ only fell from 1.16 to 1.14 that day),"
Here's their 3 steps to parity for EURUSD by the end of the year
- They see modest declines to 1.0500 by 2nd Dec
- EURUSD will fall 200-300 pips at the 3rd Dec ECB meeting
- Euro will fall another 200 pips at the Fed meeting 16th Dec
They also see it falling to their 12m target at 0.95 by the end of Mar 2016
On paper I think they have the route mapped out pretty well but it's the pip amounts that are open to discussion. For QE, the market was all about how much the ECB were going to do, this time it the prospective action is going to be about rates. That gives a narrower range of expectations compared to QE. For QE the market's expectations were anywhere from 40-120bn per month. For rates we're probably only looking at a 2-5bps change
GS don't highlight what exactly their trigger will be (rates or changes to QE). Probably the biggest supporting factor to the GS parity call won't be the actual action but the message that comes with it. As we know, the silver tongued Dragster knows how to talk the currency down
eFX news has the note in full and you can read it and many more via trial
