Global Currency Research
Conditions for further EUR weakness have fallen into place. The German Constitutional Court has supported the control rights of the German Parliament regarding future EMU support payments and guarantees. The ECB has underlined the need for fiscal consolidation and for peripheral countries to restructure their economies, which will be deflationary. On September 14, the Troika will resume discussions on Greece, and while the European part of the delegation may be ready for a further costly muddling through, the IMF will have to be more objective.
The SNB has semi-pegged the CHF against the EUR, preparing itself for further turbulence. We examine the peg and its FX implications.
So far, EMU has not been able to come up with a fiscal solution to its problems, putting the ECB in the hot seat regarding purchase of peripheral bonds. The ECB’s balance sheet has started to expand, discouraging currency reserve managers, who until last week appeared to consider the EUR as the alternative reserve currency. We look into prospects for the DKK to insure against further EMU stress.
We examine currency reserve growth and motivation for converting USDs into other currencies. Global currency reserve growth is likely to slow, given global economic weakness and Asia rethinking its export-driven growth model – as Western economies undergo structural changes. China’s plans to move towards full currency convertibility by 2015 indicate that Asian rebalancing is on a fast track. Asia currencies remain high on our buying list.
However, details of the rebalancing process should keep asset prices volatile. In this environment, FX markets will move from yielding towards protective strategies. We have developed a scorecard to look at currencies from a safety point of view.
We are selling the EUR against a basket of currencies – including the USD, AUD, CAD, RUB and SGD.
Also inside:
Overview: EUR After the Constitutional Court P2
Disappointed Currency Reserve Managers P4
DKK: No Longer Forgotten P9
CHF: Why We Believe the Peg Will Hold P10
G10: A Safe-Haven Scorecard P14
MYR: Curbing Our Enthusiasm P17
FX Tactical Trade Recommendations P20
G10 Currency Summary P24
Global Event Risk Calendar P25
FX Volatility/Carry Grids & Tactical Indicators P27
FX and Macro Forecasts P31
Click here to download the report:
http://www.easyforexnews.net/wp-content/uploads/2011/09/FX-Pulse-Funding-In-Euros.pdf
MORGAN STANLEY
SALES AND TRADING