Morgan Stanley has shared its weekly G4 Forex outlook for currency traders to acknowledge and benefit. The week is expected to be largely USD-negative, with investors pricing out expectations for Fed rate hike. Wonder why?
22 August, AtoZForex – The following is weekly G4 Forex outlook for USD, EUR, JPY, and GBP single currency pairs.
USD: Weekly G4 Forex outlook still – Bearish
Morgan Stanley thinks that USD positions will continue to be unwind on the back of weak US data as investors price out the odds for Fed rate hikes this year and search for yield continues.
“We expect Yellen to reaffirm the view of the core of the FOMC that patience is prudent, and better inflation and growth data are needed before being more confident about additional rate increases,” Morgan Stanley added.
If the data strengthens the Fed will still have the opportunity to hike. Therefore, the investment bank doesn't expect December to be priced out much further than currently is but still sees room for USD weakness in the near term. Mainly because EM continues to turn around and the EUR and JPY struggle to weaken. Although, a hawkish tilt in Fed rhetoric would be a risk to MS’ view.
EUR: In demand – Bullish
Morgan Stanley expects further upside for EURUSD to 1.15, as the pair has broken the 1.1255 level. The EUR continues to be supported by increasing real yields and domestic banks' small balance sheets reducing search for yields in USD-denominated assets. In addition, rising US LIBOR rate increases USD funding costs making the assets less attractive.
“We promote buying EUR against USD and particularly against GBP,” Morgan Stanley advise.
JPY: Weekly G4 Forex outlook stays – Bullish
“We expect JPY to resume the upward trend against USD it has maintained since the beginning of the year,” MS noted. With the Bank of Japan fuelling market rumours that the negative interest rate policy could be lifted the next meeting, real yields could rise further to support the JPY.
“FX hedging costs have risen, but we don't expect an offsetting increase in unhedged flows,” the bank noted, adding “we expect USDJPY to continue to decline.”
GBP: BoE pressure – Bearish
We finish Morgan Stanley’s G4 Forex outlook with the GBP. The investment bank stick to its bearish view and promotes selling GBP against EUR, but would wait for higher levels to short against USD. “We do not expect the data strength to stop the BoE from easing further,” Morgan Stanley noted. With inflation expectations increasing and nominal yields decreasing, UK's real yields are falling sharply, making the GBP unattractive.
Also see: Into the week: Janet Yellen Jackson Hall Speech
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