From the latest Morgan Stanley 'FX Pulse' - this their 'bottom line'
- G3 growth indications have improved further, seeing broad, domestically oriented equity indices outperform. It seems the reflation trade is gathering momentum, keeping the EM outlook supported but suggesting us switching some of the USD funding into CHF and JPY liabilities.
- The EUR rally has paused with speculation on Catalonia possibly splitting away from Spain, pushing core EGB yields lower. We stay EUR bullish waiting for a dip to buy for upside to 1.25.
- GBP remains offered as the combination of political uncertainty, economic underpefformance and the prospect of rising 'twin deficits' may push the UK risk premium higher.
- We reiterate our EURGBP parity call. Recent underpefformance of economic data in Australia and New Zealand adds credibility to our 'canal}, in the coal mine' concept. AUD and NZD should stay offered.
And, their summary for EUR:
- Watch: German Factory Orders, German Trade, IP, German CPI
- EUR may see some corrective activity in the near term as markets remain nervous about Catalonia's plan to declare independence, helped also by a stronger USD as US yields rebound. However, Spain can use Article 155 of its constitution to reverse an independence declaration by Catalonia, suggesting that Eurozone break-up risks remain low.
- The fundamental reasons for our bullish EUR view remain unchanged -Eurozone growth remains' robust and there are still legacy EUR short positions to be closed out. Swiss private investors buying more assets abroad FX-unhedged could also help EUR strength. We like using the EUR dip to buy
(any bolding above is mine)
