Currency Analyst since 2010

MS: reasons to be bearish on euro

Analysts at Morgan Stanley give their reasons to bearish on euro:

-          The single currency’s eroding major support levels.

-          European assets look less attractive to foreigners on a risk-reward basis.

-          Peripheral yields now being driven lower by domestic flows, crowding out foreign investors

-          3 types of flows into Europe are slowing: (1) private-sector purchases of peripheral bonds, (2) private-sector purchases of equities (equity market underperformance), and (3) reserve diversification into EUR (central bank reallocation flows slowing)

-          There is potential for increased FX hedging of existing European assets held by foreigners – another negative for EUR.

The specialists think that being short on euro is the trade for the next 12 months as EUR/USD decline is now set to gain momentum. Morgan Stanley expects EUR/USD to end 2014 at $1.31 and then to slide to 1.24 by the middle of 2015.

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