Morgan Stanley out with a note on what to expect in 2019

Morgan Stanley have looked into the crystal ball to see what themes will be driving FX prices next year. They’ve also updated their forecasts.


  • Q1 2019 1.17 vs 1.19 prior
  • Q2 1.20 vs 1.24 prior
  • Q3 1.26 vs 1.28 prior
  • Q4 1.31 vs 1.32 prior


  • Q1 2019 109 vs 104 prior
  • Q2 106 vs 100 prior
  • Q3 104 vs 95 prior
  • Q4 102 vs 93 prior


  • Q1 2019 1.34 unch
  • Q2 1.40 vs 1.39 prior
  • Q3 1.45 vs 1.44 prior
  • Q4 1.50 unch

“Bottom line: Shifting capital flows will have important market implications. USD and the dollar bloc have benefited from the build-up in net savings from Europe, Japan and China. These savings, well in excess of domestic capital needs, were recycled into foreign financial markets. This process now appears to be shifting. European fiscal policy is moving from austerity to expansionary, Japanese capex is picking up and China is becoming a capital importer to help fuel its fiscal spending. US economic outperformance compared to the rest of the world (RoW), particularly Europe, appears to be reversing, which only furthers this trend. Capital flows reversing mean that FX which have weakened due to capital exports like EUR and JPY should gain while those beneficiaries like USD, AUD, CAD and NZD should weaken. EMFX may outperform due to attractive valuations, high yields and a weaker USD.”

The thing is, their forecasts don’t match the analysis.

They also have a Top 10 trades for 2019. Here’s a few of them;

  • Short USD vs EUR, SEK basket -Bullish eurozone inflation and integration outlook while US growth slows
  • Short USD/JPY Japanese repatriation and a US growth slowdown
  • Short AUD/JPY Weak household balance sheets, tighter liquidity conditions and repatriation
  • Short AUD, NZD, CAD vs. SEK, NOK basket Strong European performance contrasts with weak balance sheets
Ryan Littlestone

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