Morgan Stanley lose faith in euro shorts
Morgan Stanley were short EURUSD at 1.0650 TP 0.9900 SL 1.0850, and EURGBP short at 0.8480 TP 0.8000 SL 0.8800.
Bang after the ECB they were happy to run those shorts;
"ECB to remain dovish for now. We think that Draghi did little today to provide markets with more guidance on whether the ECB is looking to remove monetary accommodation at the end of this year. The only policy that was concrete was no longer having the TLTRO facility for banks. Many years ago that would have suggested that money supply growth would have slowed, thus strengthening the EUR; however, today the policy was likely removed because of the lack of take-up by banks for business lending. On the dovish side was the stance towards underlying inflation. Draghi said that there are no signs yet of a convincing upward trend in underlying inflation, and that the upward revisions to headline inflation were due to higher energy prices. Core inflation releases will become closer market focus than the headline. Overall we still like to sell the rally in EURUSD, with the Fed meeting becoming the next near-term driver for the pair."
Two sessions later they were out at 1.0669 and 0.8721, and said this;
"We have closed our EUR short positions across the board, but we like staying long GBP. When engaging into EUR short positions, we argued the ECB would be staying loose or risk peripheral sovereign bond spreads widening otherwise. The ECB has clarified its stance post the ECB pres conference by sending out a clear dovish message. However, Italian data have notably improved in February. In particular, Italian inflation has caught up with core EMU inflation rate in February. EMU's economic divergence story is now less compelling. Hence we hold back from EUR short positions for now. Instead, we use NZD for funding purposes. Yes, it offers the highest yield in DM, but its economy has slowed and with its property market looking increasingly soft, we see the front end of the NZD curve too much geared towards the RBN hiking rates (+16bp priced for this year). Our bullish GBP story benefits from GBP bullish April seasonal factors. The main risk to this trade is a significant deterioration in UK economic data."
(They went long GBPNZD yesterday at the NY close, which was around 1.7690)
"we expect EURUSD to stay within a tight range between 1.06 and 1.08 for now. Once the French election outcome is known, the EUR should break out of its current range. In th unlikely case of France voting for a populist President, the EUR may well decline sharply and likely break parity. In the case of a market friendly outcome, investors will watch Germany. Any sign of Germany willing to turn EMU into a full blown fiscal and banking union could see the EUR gaining ground. A break above 1.08 would be a significant event"
They're still in their AUDUSD short at 0.7540 TP 0.6900 SL 0.7800.
Overall they still maintain a high level of USD bullishness, even after the poor dollar reaction to the hike.
Here's their brief on the majors;
