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Analysts are dueling!The euro has been on a tear the last few days, and today it was helped in part by a positive trade call from Goldman.
But Morgan Stanley is having none of it. In its latest FX Pulse report (cleverly titled New EUR’s Resolutions) it urges clients to short the euro:
EUR has strengthened in recent sessions, buoyed by investment interest from Asia, robust demand in euro-area debt auctions, and a hawkish tone from ECB’s Trichet. Coupled with weakening USD momentum following last Friday’s payrolls and Thursday’s poor claims data, EUR/USD has propelled back above 1.33. We think that the reaction to these events is overdone and current levels are more attractive for re-establishing shorts.
We enter a short EUR/USD trade today, with a 10% allocation.
The fundamental factors driving our core views have not changed. Although European sovereign risks seem to have abated for the time being, we expect them to resurface again in coming weeks. The European redemption schedule is extremely heavy this quarter and even if EUR sees a relief rally on issuances, the long term debt problems remain unsolved (please see EUR: Weakness is More Than Issuance on page 8 for more details).
Furthermore, the latest data releases out of the core economies are also showing more soft spots, with notable misses in German retail sales and IP. These factors will limit EUR/USD upside, in our view. We target 1.27, initially, with a stop at 1.35. This brings our portfolio’s total short EUR exposure up to 20%, which represents our highest conviction view.