Goldman marked itself as a bull on EUR/USD in its Global viewpoint publication on Wednesday. The bank is now predicting 1.5500 in the next year. Of course Goldman’s appalling call targeting 1.1500 in early June, when the spot was at its lows, got everyone’s contrarian indicator bells ringing. Everyone is entitled to the occasional erroneous prediction – even our favourite investment bank – but the rally does feel relentless: USD/CHF is at an all time low; USD/JPY is at a 15-year low; and now, to the detriment of my pee-in-the-wind FX account, EUR/USD has sailed imperiously through the 61.8% retracement of the move down from 1.5144.
However, I’m not yet ready to join the trash-the-dollar, embrace-the-risk club. There are still some strange things happening that make me nervous. One is the price of gold, at record highs of almost $1,350 an ounce as I write; it even featured in The Sun’s page 3 ‘News in Briefs’ section on Wednesday. Peta, 23, from Essex, was so distracted by the price of bullion that she’d forgotten to put on her clothes; indeed she had “…noticed gold futures reached a record $1,340 an ounce after recent market volatility boosted demand for the metal.”
There was one more event that gave me pause. Tangentially it includes Goldman – this week’s featured EUR/USD bull – and Deutsche – featured last week. They’re the two co-managers of Mexico’s century bond. I know we’re not living in the early 1990s any more; I know Mexico is firmly a member of the G20 with an economy around the 12th largest in the world. I was still impressed that the country managed to issue $1 billion of 100-year bonds with a yield of 6.1%. Perhaps I’m missing something but that’s a very long time and a very low rate. The scramble for investment return is ever more desperate.
Lastly, something that surely can be nothing but USD-negative is also a further indication of the strange times in which we are living. Apparently the Federal Reserve may now be the second-largest holder of US treasury bonds. As it says on ZeroHedge, the Fed is just $25 billion away from being the Treasury’s largest creditor.
It makes your brain fry, doesn’t it? And makes me happy to be sitting on the sidelines writing rather than having to stick my neck out and take a position.
