Full blown capitulation from the Goldman FX (strategic not tactical) team: the firm goes from a $1.35 target on EURUSD to $1.15. Score one more golden star for Goldman-Client relations. On the other hand, Thomas Stolper is officially advising clients to sell their euros to Goldman. There is no clearer signal to buy the beaten down currency.

Endogenous Political Risks to EUR/$ We have changed our EUR/$ forecasts to 1.15, 1.15 and 1.25 in 3, 6 and 12 months’ time. Since our previous FX Monthly, relative growth surprises have disappointed relative to our expectations, while market projections for the policy rate differentials between the ECB and Fed rate have moved even further away from our forecast. Fiscal policy announcements in the US and Euro-zone place further pressure on our growth forecasts. Most importantly, the policy risk premium in the EUR has risen again, also reflected in sovereign and CDS spreads, leading to some re-thinking on what drives this process. We now think stretched short EUR positions can persist until currency weakness feeds into notably stronger growth, which then reduces the pressure on Euro-zone governments. In the meantime, the risk of continued political disturbance remains high. Ultimately, however, proof of better growth will ease the endogenous political tensions and this should lead to a reduced EUR risk premium. Beyond the EUR outlook, we scan our currency universe for opportunities linked to the monetary policy and fiscal policy outlook, valuation and cyclical momentum. We find most opportunities in faster-growing peripheral currencies funded in G3.

And here is where Jim O'Neill's N-11 (which counts Iran among its members) comes into play: buy the Iranian Rial.