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Goldman Closes Short-Euro Trade Versus Yen Ahead of ECB

Joanna Ossinger
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Goldman Closes Short-Euro Trade Versus Yen Ahead of ECB

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The euro might not have much downside around the European Central Bank meeting this week, even if significant easing measures are announced, according to Goldman Sachs Group Inc.

Goldman strategists led by Zach Pandl said they’re taking a step back from euro shorts and will reassess in coming days. They’re closing a recommendation to short the euro against the yen, switching instead to shorting the dollar against Japan’s currency. The strategists are taking action even though they expect a “substantial” package from the ECB, including a 20 basis point deposit rate cut, bond purchases of 30 billion euros ($33 billion) a month for nine months, and forward guidance emphasizing a commitment to keep rates low.

“Market expectations have moved a long way, and we are no longer confident that an outcome in line with our view will drive euro-dollar lower over the near-term,” the strategists wrote in a note Sept. 6. “Moreover, lower risks of a ‘no deal’ Brexit, greater government stability in Italy, and news of policy stimulus in China may all support the single currency on the margin.”

The shift from Goldman comes after the euro last week reached its lowest level versus the dollar since May 2017. It was little-changed at $1.1031 as of 9 a.m. London time Monday. Numerous strategists and traders don’t see much upside for the euro anytime soon, and euro net shorts increased to 49,136 contracts in the week ended Sept. 3 from 38,804 in the prior week, according to data from the Commodity Futures Trading Commission.

More than 80% of economists surveyed by Bloomberg predict the ECB will say at its meeting Thursday that it’s resuming bond buying, and forecasters in the survey also expect the deposit interest rate will be cut by 10 basis points to a record-low minus 0.5%.

(Updates with euro level in fourth paragraph.)

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