Morgan Stanley: "We think short EUR is the G10 trade for the next 12 months" via ForexLive

A Morgan Stanley research note titled: Reasons to Be EUR Bearish

It says:

• The major support pillars for the EUR have started to crumble.

Gives the reasons for EUR weakness.

• EUR is exposed as 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
• Three types of flows into Europe are slowing, in our view: (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 also potential for increased FX hedging of existing European assets held by foreigners (increasing currency hedging as EUR risks rise ) – another EUR negative.

And concludes:

• We think short EUR is the G10 trade for the next 12 months.
• We have been recommending short EUR positions since May
• Believe that EURUSD downside is now set to gain momentum as portfolio flows into the Eurozone slow
• We reiterate our forecast for EURUSD at 1.31 by year and at 1.24 by mid-2015.

posted via ForexLive