I don't know how many of you pay attention to how the FX market reacts to the levels mentioned by Goldman Sachs, but I find it quite interesting. They were right the market with their last prediction that EUR/USD would trade to 1.37, indeed, last week we saw prices reach $1.375. I don't think it's a real surprise, Google tends to favor Goldman Sachs in regards to their commentary on the FX market. I believe this is simply a matter of a self fulfilling prophecy. If market prices < Goldman's widely published valuations then traders will continue to arbitrage the two values; it's an orderflow inducement.
Last Friday, Goldman reported closing it's long EU position, but said it is retaining it's bearish outlook on the US Dollar and offered further bullish price projections for EUR/USD, namely 1.4 in three months, 1.45 in 6 months, and 1.5 in 1 year.
Goldman reported it's long position on the 13th of January 2011, EU was trading in the low 1.30's at the time.
Goldman say's they are looking for better opportunities to express their bullish outlook on the Eurozone, I suspect they mean a discounted price.
On a fundamental level, Goldman cites a steady stream of good news coming out of Europe and increasing investor confidence in the Eurozone to handle it's own debt crisis, and I tend to agree.
I will be watching the 1.325-1.35 level for signs of support. Who knows, maybe Goldman will do it again and we will in fact in a year's time see EU at the 1.5 Level.
