Morgan Stanley G4 currency outlook for Forex Traders

25 July, AtoZForexMorgan Stanley has shared this week’s G4 Forex outlook for currency traders to acknowledge, providing data expectations and the key market focus.

Morgan Stanley G4 currency outlook for Forex

The following is Morgan Stanley weekly fundamental G4 currency outlook for USD, EUR, JPY, and GBP single currencies.

USD: Lower for now – Bearish

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“We expect USD will weaken over the next few months as low US yields and a better risk environment support carry trades and commodity currencies,” Morgan Stanley begins.

However, in light of some better than expected US data, the bank is watching July Fed meeting on Wednesday closely for any sign of US rate hikes this year to adjust market expectations.

EUR: Upside potential – Bullish

Last week's ECB meeting provided few surprises and did not commit to September ECB easing. MS’ thinks that even if the central bank cut’s EU interest rate by 10bps, it will not do much for the EUR given the ongoing banking sector weakness and extremely low yields.

“We still see upside potential for EUR in the medium term on the basis of real yield differentials, and like buying against USD and particularly GBP,” Morgan Stanley added.

JPY: Waiting for BoJ – Neutral

With the Japanese authorities not revealing specific details on easing, Morgan Stanley thinks the JPY will remain volatile. “We will watch the outcome of the BoJ meeting on 29 July and the announcement of the supplementary budget before re-entering any JPY trades,” Morgan noted.

As long as the Bank of Japan doesn't implement a “helicopter money” like solution or a much bigger fiscal package, the JPY should strengthen over the medium term as Abenomics targets become increasingly difficult to achieve.

GBP: Short on rallies – Bearish

GBP should be highly sensitive to a slew of post Brexit data points. The news, particularly surveys, are likely to receive an immediate hit from UK exit, in turn putting GBP under selling pressure.

“Given our economists' call for a 40bp rate cut at the BoE's August meeting, we see potential for more GBP weakness,” Morgan Stanley added.

Any GBPUSD upside should be limited to 1.35, while downside is expected to extend towards 1.24 in the coming months. Therefore, Morgan Stanley notes that risk/reward of selling GBP against USD, and especially against EUR, is favorable.

Also see: UOB Daily trade ideas for Forex

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