PDF Archive

Easily share your PDF documents with your contacts, on the Web and Social Networks.

Share a file Manage my documents Convert Recover PDF Search Help Contact



b4dc6f79 e444 4c4e 9a60 78a8f75ac4d3.pdf


Preview of PDF document b4dc6f79-e444-4c4e-9a60-78a8f75ac4d3.pdf

Page 12330

Text preview


MORGAN STANLEY RESEARCH

Global Currency Research Team
For research analysts, please see contact list at the back of this material.

November 27, 2013

Currencies
Global

FX Pulse
Selling Season for EUR
Trading FX Markets:
Yield Curves Signal FX Moves. Relative yield
curve shifts are moving to the forefront among G10
FX drivers, as forward rate guidance caps front-end
yields near the effective zero bound. Against this
backdrop, expectations for a taper-driven relative
steepening of the US curve could be a key FX driver
in coming months, lifting the USD broadly. The JPY
and the dollar-bloc currencies are most vulnerable to
a steeper US yield curve, reflecting a combination of
leverage, over-investment and external liabilities.
Disinflation Risks and Monetary Policy. Deflation
risks signal currency downside where central banks
have the flexibility to undertake offsetting policy
easing. We have already entered a long USD/SEK
position, expecting the negative October CPI print to
prompt Riksbank easing in December. Today, we
add a long USD/CHF recommendation ahead of
next week’s Swiss CPI data.
In This Week’s Edition:

Trade Recommendations
Closed Trades
Long EUR/JPY

Entry

Stop

Target

Take profit if hit target 139, stop

Active Trades
Short USD/KRW 1M NDF
Short EUR/GBP
Long USD/JPY
Long USD/RUB
Long USD/SEK
Short EUR/USD
Limit Orders
Buy USD/CHF
Options Trades
Long USD Put/CNH Call

of 138 or close at WMR on 28-Nov-13
Entry
Stop
Target
1063
1080
1000
0.8480
0.8420
0.8100
97.50
99.40
105.00
32.66
32.00
34.60
6.56
6.46
6.90
1.36
1.38
1.27
Entry
Stop
Target
0.9030
0.8880
0.9700
Entry Date Expiry Date
Strike
31-Oct-13
10-Jan-14
6.1000

See page 12 for more details. Changes in stops/targets in bold italics.

MS Major Currency Forecasts
4Q13

1Q14

2Q14

3Q14

1.30
105
1.58
0.95
1.05
0.93
0.83
137
0.82
1.24
8.60
7.70

1.27
110
1.57
0.98
1.08
0.91
0.82
140
0.81
1.25
8.60
7.60

1.25
114
1.55
1.02
1.10
0.88
0.80
143
0.81
1.27
8.50
7.50

1.24
117
1.53
1.03
1.12
0.85
0.78
145
0.81
1.28
8.40
7.55

EUR/USD
USD/JPY
GBP/USD
USD/CHF
USD/CAD
AUD/USD
NZD/USD
EUR/JPY
EUR/GBP
EUR/CHF
EUR/SEK
EUR/NOK

Note: Forecasts for end-of-period. G10 forecasts updated September 26, 2013

EUR has moved back into focus, with EUR/USD
revisiting pre-ECB rate cut levels. As we had
predicted, the 25bp refi cut failed to trigger a durable
EUR-weakening trend, as persistent LTRO
repayments tightened excess reserves, supporting
Eonia. In addition, to reduce their dependency on
ECB funding, Banks are cutting their FX assets in
preparation for the ECB’s Asset Quality Review.
Bank repatriation flows appear to have lifted
EUR/USD well above levels suggested by interest
rate spreads, and we take this opportunity to
establish a short EUR/USD position and take profit
on our long EUR/JPY position. Widening growth
differentials should weaken EUR/USD over the
course of 2014. And concerns that a deflationdriven rise in EUR real interest rates would bolster
EUR appear unfounded – the evidence from Japan
and Switzerland is not compelling.

FX Market Overview

P2

EUR/USD Topping Out

P6

Strategic FX Portfolio Trade Recommendations

P12

G10 & EM Currency Summary

P15

Global Event Risk Calendar

P17

FX Volatility/Carry Grids, Tactical Indicators

P19

MS FX Positioning Tracker

P22

Macro Forecasts

P23

FX Bull and Bear Projections & Forecasts

P24

For important disclosures, refer to the
Disclosures Section, located at the end of
this report.