06 June, AtoZForex, London – New week, new Forex outlook. Morgan Stanley has shared its weekly fundamental Forex outlook for EUR, GBP, CHF, and CAD single currencies.
EUR: Dovish ECB – Neutral
The ECB was more dovish than expected during last week’s ECB meeting, leaving growth and inflation forecasts for 2017/18 unchanged despite higher crude oil prices. Also highlighting concerns about future growth prospects. This supports Morgan Stanley’s risk-bearish view, which will keep the EUR supported on the back of inflation expectations falling faster than nominal yields, resulting in appreciating real yields.
“Given our expectations for USD appreciation, we believe EURUSD will continue to range trade, and would prefer trading the currency via long EURGBP positions,” Morgan Stanley noted.
GBP: Reversal – Bearish
Recent GBP weakness was driven by a turnaround in the latest Brexit poll results, which Morgan Stanley thinks will remain volatile ahead of the EU referendum. Overall, the investment bank stays bearish on GBP for two structural reasons.
First, recent UK data has remained soft. Second, “we expect commodity prices to come under pressure, which does not bode well for GBP given its high positive correlation with commodity prices,” Morgan Stanley noted, adding “we like expressing our view through selling GBP against EUR and USD.”
CHF: Focus on Risk – Neutral
“Given our risk bearish view, we expect CHF to appreciate helped by rising real yields and its status as a safe haven currency,” Morgan Stanley advised.
With upcoming European risk events in June, including the German Constitutional Court ruling on the OMT, Spanish elections, and EU referendum, the investment bank looks for opportunities to short EURCHF. “We expect USDCHF to remain driven by the USD leg determined by the markets’ repricing of a Fed rate hike,” MS added.
CAD: Weekly Forex outlook – Bearish
Morgan Stanley maintains its bearish CAD weekly Forex outlook following the BoC meeting, “we believe it was not as hawkish as the market took it and expect further economic weakness will cause markets to price a higher chance of rate cuts,” the bank added. Last week’s poor GDP data points to a weak second quarter and Morgan Stanley is watching Canada’s trade data closely for signs of further deterioration.
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