Reduces 2011 target for the Euro to 1.10$.Goldman:
Amid a spate of negative headlines the euro eventually broke out of its frustrating 1.21-1.25 range and subsequently printed a low of 1.1876 in Asia. No doubt sentiment is now very negative and short positions which had been aggressively pared back will have started to rebuild with various downside strategies being implemented. [...] So whilst the uniformity of view is concerning, the risks for now still feel weighted to the downside. We are holding a core short position and hoping short squeezes provide the opportunity to sell more close to 1.2000 and above. A stop needs to be left above the 1.2110/50 area which offered multiple lows before breaking. First support emerges at the Asian low of 1.1876 , with 1.1800 likely to attract interest, while a reasonable target is the 2006 cycle low of 1.1640.Now what about Iran selling their euros to buy gold and dollars?
June 2 (Bloomberg) -- Iran’s central bank began the first phase of the 45 billion-euro ($55 billion) sale of some of its reserves for dollars, the state-run Jaam-e-Jam newspaper reported, citing people it didn’t identify.
The bank is selling 15 billion euros in the first of three stages, which will be completed by Sept. 22, the newspaper reported on its website on May 31.
Iran will “substantially” decrease its oil sales in euros, the paper said. It informed Japan and other crude-oil customers of the change, Jaam-e-Jam said. The Persian Gulf country’s euro reserves are 55 percent of the total, and would be reduced to 20 to 25 percent after the sale is complete and after oil sales in euros have been reduced, the paper said.
Experts in Iran’s central bank have suggested the country buy gold because they forecast the precious metal’s price will increase, Jaam-e-Jam said.
Babak, over at Trader's Narrative has a great post, and I'll restrict myself to quoting him, as it's difficult to say it better than him:
As most central banks, the Iranian central bank may have a few dozen economic PhD’s on staff but they don’t seem to have anyone who knows anything about the currency markets or trading. They are about to compound an earlier mistake by switching their foreign currency reserves from Euros to gold and US Dollars.
You may recall that these were the same braniacs in early 2008 who decided to end oil transactions in US dollars and instead used primarily Euros (with some Yen thrown in for good measure). That just happened to be the low for the US dollar index and the high for the Euro.
At the time public sentiment for the US dollar was extremely low. Ahmadinejad even referred to the US dollar as “worthless pieces of paper”. This politically motivated decision, thinly veiled as economic policy, was even promoted by Iran in OPEC. They lobbied other OPEC member states to move away from pricing oil in US dollars and instead use a basket of currencies, weighted heavily towards the Euro.
Now Iran is putting the cherry on top of this trade by gunning it into reverse. Not being satisfied with picking the low in the US dollar and the high in the Euro (in early 2008), they now want to pick the top in both the US dollar and gold and the low in Euros - currently the most oversold major currency.
When things get so bad that central banks are spooked and they are so spooked that they put aside ideology to protect themselves from what they see as a worsening crisis, then we have the makings of a contrarian inflection point. Of course, it also helps that we have corroborating evidence from a number of sources, including the DSI. But it is satisfying to see such anecdotal evidence nonetheless.