Morgan Stanley Recommend Short EUR/USD

Late on Friday Morgan Stanley noted that “the Fed is priced to cut around 200bp below the current level by end-2024, while the ECB is not priced to cut significantly below current levels. If U.S. growth continues to slow meaningfully (and markets price increasing risks of a U.S. recession), we expect spillovers into pricing for other central banks, including the ECB, as well as global growth. We believe the ECB may have to cut further than the Fed in the event of a global downturn. EUR/USD would likely move lower if 2-Year yield differentials move in the USD’s favour. The key risk to the trade is that price pressures in the U.S. decline sharply while they remain elevated in the Euro Area, leading yield differentials to move in the EUR’s favour.”

• As such, they recommended entering a short EUR/USD position at $1.0995 with a target of $1.0300 and stop set at $1.1350.