Euro Debate: Goldman Says Buy, Morgan Stanley Says Sell

By Allison Bennett - Nov 12, 2011 3:07 AM GMT+0700

Goldman Sachs Group Inc. recommends buying the euro after developments in Europe’s sovereign-debt crisis this week. Morgan Stanley said its time to sell the 17- nation currency against the dollar.

The 17-nation currency gained today, rising 1.1 percent to $1.3749, as former European Central Bank Vice President Lucas Papademos was sworn in as prime minster of Greece and Italy’s Senate approved an austerity bill, paving the way for a new administration that may be led by former European Union Competition Commissioner Mario Monti. Italian bonds gained, pushing yields down from euro-era records above 7 percent.

The emergency of the new governments helps reduce “near- term political uncertainty” and suggests “that euro-zone fiscal tensions could continue to decline, at least for a period of time,” wrote Thomas Stolper, Goldman’s London-based chief foreign-exchange strategist, in a client note.

Investors should target $1.40 and should exit the trade if the euro falls to $1.35, according to the Goldman note. In a video webcast today, Stolper reiterated a 12-month forecast of $1.48 for the euro.

Morgan Stanley said the shared currency may fall to $1.30, according to analysts led by Hans Redeker, the firm’s head of foreign-exchange strategy in London. “Political uncertainties” and Italian bond yields that remain above 6 percent leave the firm “fundamentally bearish” on the euro “as Italy runs the risk of being too big to save,” the firm said in a client note.

Traders should sell the euro, targeting $1.3050, and end the bet if it rises to $1.3950, Morgan Stanley recommended in a note yesterday.

To contact the reporter on this story: Allison Bennett in New York at abennett23@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net