EUR/USD has certainly shown signs of recovery by escaping low ground and looking to rise.
However, the team at Morgan Stanley sees the pair en route to break 1.0490:
Here is their view, courtesy of eFXnews:
The US yield curve has flattened further this week expanding a trend which is now in place for three months, notes Morgan Stanley.
“The flattened curve suggests that a ‘dovish rate hike’ in December in now well telegraphed, bearing little surprise potential for risky assets,” MS adds.
“It is not the Fed that matters for the interpretation of risk and the evolution of USD from here, it is the performance of the Asian and here especially the Chinese economy. Once Asian data improve, signalling a better local investment outlook, repatriation-related USD demand should ease, allowing USD to correct lower and the DM risk rally to widen its wings, affecting EM markets too.
The continued fall in industrial raw materials prices suggests that it is not yet time to bet on stronger Asian economic data releases, keeping us long USD,” MS argues.
Turning to the EUR and the ECB, MS notes that the German opposition of further QE as expressed by ECB Lautenschlaeger did not even lead to a slight market reaction as the market understands that hawkish ECB members are in a minority position.
“Draghi, Coeure and Praet run the show, determining the dovish direction of the ECB, keeping EUR under selling pressure.
The previous EURUSD 1.0490 low may work as a magnet for further price activity,” MS projects.
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