In the latest MS FX update they say the trend is your friend
The latest Morgan Stanley FX Pulse is out and for those of you who don’t know, it’s probably one of the best Forex reports out there. This week they say that the Euro should continue to slide.
EUR selling to continue.EUR selling should continue as weaker economic data, political uncertainty in Italy, and slowing economic reform momentum render EUR shorts more attractive. The widening in the BTP-bund spread suggests tightening local financial conditions and has prompted the ECB’s Vitor Constancio to comment that the central bank is monitoring the situation. With broader European data already decelerating, the ECB may be forced to compensate with a dovish response. EURUSD remains vulnerable along with EURNOK, and we add a EURNZD short position as well
We express a tactical bullish view on NZD against the EUR. NZD appears oversold when measured using technical indicators like the RSI, and NZD looks poised to gain relative to other commodity producers from a terms-of- trade perspective. Risk reversals and positioning indicators suggest the risk/reward favours NZD buying as well. Meanwhile, the EUR leg is an attractive short in our view, given weakening economic data, slowing political reform, and the prospect of rising political risks from Italy. A risk to this trade is that European data improve, leading to a reversal in EUR weakness.