In Morgan Stanley's latest weekly FX update, they still think the dollar is the game in town
Morgan Stanley are after a long in USDJPY. Late last week they set a buy limit in at 112.50, with a stop at 110.00 and TP at 120.00.
"Good USD' Still in Play. The current USD correction could continue for a few
more days as positioning clears out, but we believe this will ultimately create
opportunities for FX investors. Strong US data should continue to be the main
source of support for USD, focused against low-yielding DM. Wage growth in the
US is picking up, and broadening across industries. Strength in the US economy
should boost real yields in the US, in line with the reflation theme that markets
have played for the last few months. In this environment, we believe risk would
likely remain supported and liquidity ample, as EUR and JPY rates move higher,
only slowly. USD strength should be focused against EUR and JPY, which lag the
reflation theme, while risk appetite keeps high-yielding EM with strong
fundamentals supported. We add a long USDJPY trade this week to play this
theme, though in light of crowded positioning, await further dips in USDJPY
before buying and set our entry accordingly."
They also entered a short EURUSD position on the 12th at 1.0650, with a stop at 1.0850 and TP of 0.9900.
"We think the USD correction is only temporary and so are using dips to buy vs the
majors. The development in real yields and ECB policy are offering us good reasons to
be short the EUR. In particular, the ECB has developed a dovish framework even as
signs of inflation are appearing in Germany. The EUR-REER trades 22% above its low
point, in 2000. However, increasing economic divergence within the Euro block and the
rising populist risk via upcoming elections in the Netherlands,
France, Germany and eventually Italy argue for a weaker EUR FX
rate. As global inflationary pressures rise and risk appetite stays
strong, we would expect the EUR to weaken. The risk to this trade
is a longer than expected sell-off in the USD."
Never conservative with their stops and profit levels are they?
There's not a lot technically around their USDJPY entry point and if it were me, I'd look to hold out for a dip to a stronger looking 111.40/50.
USDJPY daily chart
They're EURUSD trade is playing ball for them so far but the profit target is going to take some going to get to. One of their reasons for remaining bullish USD is they say the US data should continue to support the buck but if the evidence on the PA vs the data so far this year is anything to go by, that's not happening.
We'll get a good idea of that tomorrow when we get the Empire state release. That will be a good bellwether to see if the Dec manufacturing (and other indicators generally) are the start of boost for the US or if they were a one off.
Let me know what you think of their trades?
