Morgan Stanley reiterates its bearish EUR view and expresses that via holding 2 short EUR/USD positions as a short-term and medium-term recommendations.
Falling peripheral yields:
“Peripheral bond yields have come down and with the €400 billion TLTRO standing ready to boost commercial bank balance sheets, peripheral bond yields are likely to fall further. However, falling peripheral yields should reduce the attractiveness of this asset class for non-bank investors. Investors will likely look for alternatives and, with cross-currency yield differentials widening in favor of non-EUR currencies, EUR should come under selling pressure,” MS argues.
Voliatily is a key:
“The level of volatility will decide if EUR is falling slowly or at a brisk pace. Should volatility stay low, carry will remain the dominant theme, suggesting EUR crosses trading moderately lower. Nonetheless, as soon as volatility picks up, EURUSD should trade sharply lower,” MS adds.
In line with this view, MS maintains a short EUR/USD position as a short-term trade recommendation from 1.3620, with a stop at 1.3700, and a target at 1.31. MS holds a similar position in its medium-term portfolio, (same entry & target) but with a stop at 1.3740.