Synopsis:
Goldman Sachs discusses recent trends in EUR flows, highlighting the significant interest in EUR/USD trades, particularly amid European growth concerns and the divergence between the EU and US economies.
Key Points:
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Increased Interest in EUR/USD:
This week has seen a notable uptick in interest for medium-dated EUR/USD downside among hedge funds (HF) and real money (RM) investors. This trend is partly driven by the need to hedge against potential Trump-related volatility in the upcoming US elections. -
Macro Factors:
The interest in EUR/USD downside is aligned with a backdrop of weakening European growth and a growing divergence between EU and US economic prospects. However, some investors who entered the trade earlier this month are taking profits, indicating a mix of market sentiments. -
Preferred Strategy:
Goldman Sachs remains biased towards playing EUR weakness, recommending short positions in EUR/GBP as their preferred trade. This reflects their research team's outlook on the EUR's potential underperformance against the GBP.
Conclusion:
In the near term, Goldman Sachs identifies a significant focus on EUR/USD flows influenced by macroeconomic conditions and political developments in the US. They recommend strategically shorting EUR/GBP to capitalize on anticipated EUR weakness.