It isn’t too late to bet against euro: Goldman

A group of currency strategists from Goldman Sachs Group said Wednesday that there’s still a compelling case for shorting the euro ahead of Thursday’s meeting of European Central Bank policy makers.

The team expects the ECB to overdeliver on Thursday with both a deposit-rate cut and a modest expansion of its monthly bond purchases. The euro could shed two or three cents as a result, they said. The Frankfurt-based ECB will announce its rate decision at 12:45 p.m. London time, or 7:45 a.m. Eastern, followed by ECB President Mario Draghi’s news conference at 1:30 p.m.

They reason that inflation will remain stubbornly low as the peripheral eurozone countries with large debt burdens (think Italy, Spain, Portugal and Greece) implement structural reforms. So the ECB will need to do more to boost it.

And because the ECB has already eased monetary policy once this year, Thursday represents the only opportunity the ECB will have to ease in the near future without risking its credibility, Goldman said.

So it makes sense that the ECB will attempt to exceed expectations.

“It is thus important — both for ECB credibility and, more important, for reversing the lowflation dynamic — to make tomorrow’s easing a material event, i.e. to surprise the market.” the analysts said in a note.

And positioning in currency futures isn’t as bearish on the euro as it was ahead of the ECB’s last easing announcement in January, they said.

So there’s plenty of room for the euro EURUSD, -0.3768% to fall another two or three “big figures” — equivalent to U.S. cents — after Thursday’s announcement. Goldman figures that a 10 basis-point cut in the deposit rate is worth two cents.

Goldman’s view is an outlier, and many market strategists believe that more easing has already been priced in to the euro-dollar exchange rate. A team of strategists UBS say they don’t see a sufficiently attractive risk/reward ratio to short the euro