Just a few short weeks after Goldman's top FX strategist (whose favorite trade was 'long dollar') quit, the banking behemoth has reversed its call on two so-called "top trades"…
Before Goldman's chief FX strategist Robin Brooks quit (the replacement to the infamous Thomas Stolper), he suggested…
…coming Dollar appreciation will arguably take the Dollar into overvalued territory, but given the outperformance of the US vis-à-vis others, US policy makers will have to accept this as part of a necessary tightening in financial conditions.
And now, just a few short weeks later, Goldman says they are closing their two long-Dollar ‘Top Trade’ recommendations: long USD versus EUR and GBP, and long USD/CNY via the 12-month NDF.
We see three main reasons why these trades have not performed since initiation in mid-November, and no longer warrant a place among our ‘Top Trades’:
(1) The pickup in global growth, which has reduced the degree of US outperformance.
(2) Concerns about Dollar appreciation from the Trump Administration.
(3) The Fed’s turn towards balance sheet normalization, which has resulted in less hawkish communication about the funds rate than we might have expected.
In addition to closing these two recommendations, we are putting the remainder of our foreign exchange forecasts under review.
We do not anticipate making major changes to the rank ordering of return expectations, but we may adjust a number of spot rate forecasts to reflect a flatter trajectory for the trade-weighted Dollar.
In recent years we have generally maintained a bullish Dollar view, and the greenback still has a number of things going for it, including a healthy domestic economy, an active central bank, and lower political uncertainty compared with the UK and Euro area. In the near term the Dollar could gain if the Trump Administration makes progress on fiscal stimulus or if the Front National wins the upcoming presidential election in France.
However, a number of fundamentals have changed on the margin, such that the long-Dollar story no longer warrants a place among our ‘Top Trades’. In addition to closing these two recommendations, we are putting the remainder of our foreign exchange forecasts under review. We do not anticipate making major changes to the rank ordering of our return expectations, but we may adjust a number of spot rate forecasts to reflect a flatter trajectory for the trade-weighted Dollar. Our current forecasts imply an appreciation in the Dollar NEER (nominal effective exchange rate) of 6.5-7.0% over the next 12 months, which we now see as too high.
And the dollar is reacting (help by strength in cable after Theresa May's moves)
The big question is – did Goldman let Trump front-run this?
Goldman tells clients to go long USD, tells Trump to short it
— zerohedge (@zerohedge) April 13, 2017
via http://ift.tt/2oIxvsF Tyler Durden