Goldman Sachs closing USD long calls

Goldman Sachs closing USD long calls

Goldman Sachs is closing two long-dollar "top trade" calls, both of which would have posted losses, the bank said in a note.

In recent years the bank has 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 U.K. and euro area. However, a number of fundamentals have changed on the margin, such that the long-dollar story no longer warrants a place among Goldman’s ’Top Trades.’"

The trades, which it initiated in mid-November, were a long dollar plays against the euro and the pound as well as going long the dollar/yuan via a 12-month non-deliverable forward (NDF). The euro and pound trade had a potential return of negative 0.2 percent, with modest carry gains offsetting a spot return of negative 0.6 percent, while the yuan trade had a potential loss of 1.1 percent, Goldman analysts said.

The US dollar has lost to its G10 peers since the beginning of the year, with the yen benefiting the most. source: Bloomberg

The bank also cited three reasons that the trades didn’t work out, adding that he expected all three would remain dollar headwinds.

First, global economic growth had picked up, reducing the U.S. economic outperformance, he noted, citing gross domestic product (GDP) forecasts for G-10 countries since the U.S. presidential election in November. Although forecasters have marked up their U.S. growth expectations over this period, the changes have been more modest than for other economies, including the U.K. and Euro area.

Goldman also pointed to U.S. President Donald Trump’s recent rumblings on dollar strength. Last week, Trump said the currency was "getting too strong" in an interview with The Wall Street Journal.

The third headwind to a long dollar trade came from less-hawkish expectations for tightening from the U.S. Federal Reserve. Earlier this month, a summary of the Federal Open Market Committee meeting held in March, during which the group approved a quarter-point hike in its benchmark interest rate target, indicated that officials would begin shedding some of the $4.5 trillion in bonds it holds on its balance sheet this year.

To conclude, Goldman doesn’t see a much stronger dollar in the near future. The currency may have peaked and as long as the FED doesn’t speed-up with its hikes, more gains are not expected.

About Author

Our research team will provide all technical and fundamental news as well as all inside information coming from London's City desks to help investors trade fx and stock markets. Be sure that you already follow our twitter account @XMarketsuk in order to be up to date with all latest analysis, news and inside information.

Disclaimer: This material is considered a marketing communication and does not contain, and should not be construed as containing, investment advice or an investment recommendation or, an offer of or solicitation for any transactions in financial instruments. Past performance is not a guarantee of or prediction of future performance. X Markets and XSpot. do not take into account your personal investment objectives or financial situation. X Markets and XSpot. make no representation and assumes no liability as to the accuracy or completeness of the information provided, nor any loss arising from any investment based on a recommendation, forecast or other information supplied by any member of X Markets Websites’ team, a third party or otherwise. This material has not been prepared in accordance with legal requirements promoting the independence of investment research and it is not subject to any prohibition on dealing ahead of the dissemination of investment research. All expressions of opinion are subject to change without notice. Any opinions made may be personal to the author and may not reflect the opinions of X Markets and XSpot. This communication must not be reproduced or further distributed without prior permission.

Risk Warning: Forex (FX) and Contracts for Difference (’CFDs’) are complex financial products that are traded on margin. Trading FX and CFDs carries a high level of risk since leverage can work both to your advantage and disadvantage. As a result, FX and CFDs may not be suitable for all investors because you may lose all your invested capital. You should not risk more than you are prepared to lose. Before deciding to trade, you need to ensure that you understand the risks involved taking into account your investment objectives and level of experience. Past performance of FX and CFDs is not a reliable indicator of future results. Most FX and CFDs have no set maturity date. Hence, a CFD position matures on the date you choose to close an existing open position. Seek independent advice.