Morgan Stanley G4 Forex outlook before Xmas, ahead of the BoJ meetings this week. This week’s brief insight into the major currencies, EUR,GBP and USD. Strong US Dollar?
Morgan Stanley G4 Forex outlook
EUR: Bearish bias – EUR new lows
Following the hawkish stance from the FED and USD strength. Since January 20013, EUR moved to new lows. ECB paved the way for purchases of 2 year tenor bonds at below the deposit rates has hurt the EUR. By lower front-end yield differentials (EURUSD is sensitive to) and steepening the yield curve, will help banks profits and export of capital. .
Morgan Stangley added..
“… We expect EURUSD could continue to head towards parity driven by USD strength and an accommodative ECB. “
GBP: Bullish bias – Rebound possible.
GBP outlook from last week remains in place. The possibility of GBPUSD rebounding off the 1.30/1.31 level as year end approaches. A combination of the recent positive UK economic indicators like the CPI and Retail Sales and BoE’s neutral stance, GBP downside likely to be capped. The high hard Brexit GBP risk premium is also priced in. news recently indicates risk is lessening. Morgan Stanley’s added ….
“… with recent news indicating that this risk is lessening, there is potential for some ‘hard Brexit’ discount to be priced out. We remain short EUR/GBP.* “
USD: Neutral bias – After FED Bullish.
USD outlook remains bullish for 2017. After the FED’s hawkish meeting and revision of the 2017 dots plus neutral rate, as well as Yellen’s pushback on her support for an over heated economy, these are hawkish signs. This gices reason for a higher repricing by the rates markets. However, until the end of 2016 expect a correction as the most likely scenario. Due to policy initiatives following US elections, expect these to be positive for USD, … Morgan Stanley additionally added …
“.. , including fiscal stimulus, risk of protectionism and corporate tax reform. USD strength will be most pronounced against the low yielders like JPY.”
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