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.