The Easter holiday is a good time to look at the bigger picture of EUR/USD. The team at Morgan Stanley discuss the next leg down?
What will move the pair out of the current range? Here are some answers:
Here is their view, courtesy of eFXnews:
The EUR/USD rebound after the March FOMC proved limited and short-lived, highlighting the major underlying bearish trend, notes Morgan Stanley.
“EUR weakness has been driven by several factors, such as the ECB’s QE operations and the growing use of EUR as a global funding currency, both for portfolio and business investment,†MS adds.
While these EUR-bearish factors are set to continue, a question that is now being asked by MS clients is what will be the trigger for the next leg of the EUR decline?
“We believe the answer lies with the major global risk factors – the most important for EUR being the developments in Greece,†MS answers.
“Indeed, we note that EUR/USD has recently changed behavior once again, suggesting that it is not just portfolio and funding flows driving the currency. EUR now appears more exposed to global risks factors. We see Greece as the most likely source of renewed risk for EUR, having the potential to accelerate and extend the bearish momentum,†MS argues.
“Given its deteriorating financial position and the lack of agreement with the EU and other official creditors, the risks of a mishap or accident taking Greece closer to the exit from the eurozone have been increasing since mid-March, in our view,†MS adds.
As a result, MS now see an increased risk of EUR/USD bear case scenario – 0.90 for year-end – being achieved. MS’ EUR/USD year-end forecast currently stands at 1.05.Â
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