In Morgan’s view, EUR is driven by risk appetite. As many investors hedged equity positions with short EUR, an environment where commodity currencies and emerging markets may sell off, risk generally could take a hit, points MS, adding some support to EUR in the short-term. “Over the medium to longer term, however, we retain our bearish view on EUR,” finished MS.
“We believe the BoJ is likely to refrain from further easing barring an unforeseeable shock to inflation, which should offer support to JPY,” starts Morgan. For now, the central bank is focused on its new core CPI indication which does not include energy, and has grown firmly over the recent months. Shift by Japanese investors is no longer relevant to MS, and “we now see conditions which should be generally supportive to the currency.”
Morgan Stanley believes GBP performance will spread in three phases. First, broad-based GBP strength going for the 6th of August MPC meeting, “where we expect the first vote for a rate hike,” points MS. Second, a more selective approach following the meeting, where force will be focused towards commodity currencies and emerging markets, adds Stanley. “Finally, given the longer-term headwinds to UK growth from fiscal tightening and political uncertainty, the currency may lose steam after the first hike,” projects MS.
The fed have overshadowed glimpses of positive news for Canada of oil production cuts. “We like buying USDCAD on this dip, believing that as oil price uncertainty continues to mount, USDCAD will continue to head higher, testing the levels reached at the end of last week,” notes MS. Moreover, the indirect impact of the lower oil price on the economy could be further seen in upcoming employment data.
Morgan Stanley weekly outlook commences with USD, stating that: “USD remains our favorite long in the G10 space. The latest Fed meeting kept September on the table, though we expect they will hike in December,” Wages, employment and inflation indicators will be in the spotlight in the time-frame from now to the eventual hike. Morgan Stanley highlights the upcoming PCE and ISM in particular. “We expect USD strength to be focused against EM and commodity currencies,” adds MS.