Morgan Stanley weekly outlook for Majors

14 September,, Vilnius – As USD pushes against EM and EUR with JPY are likely to benefit in near-term, Morgan Stanley has shared its weekly outlook for majors.

USD: To remain strong against EM, bullish

“We remain bullish on USD, particularly against EM and commodity currencies. We expect no hikes at the upcoming Fed meeting,” MS begins. Therefore, the rate suppression could provide temporary support to the Emerging Market currencies, as only a 30% lift-off chance is priced in.

However, any relief rally would be short-lived and, “we would expect the market to focus on a December hike and weak EM growth,” Morgan added.

EUR: Shifting direction, neutral

“We remain bearish on EUR over the medium term but see reason for some support in the near term,” point MS. EURUSD remains inversely correlated with risk appetite, suggesting that as global volatility continues to stay high and risk appetite soft, there is reason to see EUR supported. The recent ECB press conference sounded very dovish, should the voice suggest tougher monetary actions, risk factor to MS view would increase.

JPY: Eyes on wages, neutral

The major bank thinks JPY is likely to outperform over medium-term but is cautious in near-term for a few reasons. “First, we believe that risk appetite could see some near-term support on the back of potential China fiscal stimulus and Fed hike delays,” MS argues. This would weigh on safe haven currencies like JPY and CHF. “Second, data out of Japan have been somewhat weaker, raising the risks of further easing in the country,” the bank added.

GBP: Fundamentally-packed week, bearish

“We maintain our bearish GBP view and like to sell against USD and JPY. Data have started to weaken in the UK, in particular the services and manufacturing PMIs.” Morgan remains bearish despite the BoE neglecting the global volatility and seeing upside for inflation. GBP is well correlated with risk appetite, thus MS continues to monitor equity markets. This week’s focus will be on CPI, wages and retail sales, which can potentially influence the BoE.

AUD: Domestic deterioration, bearish

AUD could face temporary reinforcement should China introduce additional economic measures and if the Fed will not hike this week. However, MS points that domestic data in the country have been dull and China remains under disinflationary pressures. “Markets are only pricing in 30bp of cuts over the next few months; our economists expect 50bp. We expect AUD to remain under pressure over the medium term,” Morgan Stanley finished.

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