Morgan Stanley: 15 Currency Trades You Should Make Right Now

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The currency markets are in flux with rising market volatility, particularly with investors fleeing the euro and searching for a new safe haven.A note out from Morgan Stanley’s Global Currency Research team last night provides an in-depth roundup of where they’re bets stand.

Check out their take on which currencies stand to rise and fall amid market uncertainty.

United States dollar (USD): Bullish

Watch: Payrolls, FOMC Minutes, Trade, Claims, Retail Sales, U-Mich

- USD will be a safe haven in a volatile market.

- There are short term risks, however, like Chinese CPI next week.

- BOE from the QE will probably boost dollar value.

- Long against a basket.

EU euro (EUR): Bearish

Watch: German Industrial Production and Trade, CPI, Slovakia EFSF Vote

- The euro's value will probably decline alongside eurozone growth

- Slovakia's vote on the EFSF remains risky

- However, the ECB decision yesterday to maintain rates means the euro has room to grow

Japanese yen (JPY): Bullish

Watch: Leading Index, BOJ, Eco Watchers, Machine Tool Orders, CGPI

- The yen remains a safe haven as eurozone uncertainty grows.

- Domestic JPY purchases will increase too because Japanese exporters are under-hedged.

- Consensus is for no action to stem currency appreciation at the Bank of Japan meeting next week.

- Long against a basket.

British pound sterling (GBP): Bearish

Watch: PPI, BRC Sales, RICS House Prices, IP, Weekly Earnings ex Bonus

- Bank of England's decision to undertake quantitative easing will deflate the currency.

- Recession in the United Kingdom looks worse than expected.

- Activity data could result in more QE.

- Short against a basket.

Swiss franc (CHF): Bearish

Watch: Unemployment Rate, PPI

- Economic indicators came in weak, even though CPI was higher than expected.

- Slow domestic growth could lead to more aggressive action from the Swiss National Bank, depreciating the franc further.

Canadian dollar (CAD): Bearish

Watch: Housing Starts, Trade

- The CAD will receive near-term support from the employment report out today.

Australian dollar (AUD): Bearish

Watch: Business Confidence, Consumer Confidence, Home Loans, Employment

- The currency is strongly tied to international growth.

- The Aussie will struggle as emerging markets are called upon to support the developed world.

- The AUD could rally if Chinese inflation comes in under expectations.

- Short against USD and JPY.

New Zealand dollar (NZD): Bearish

Watch: Consumer Confidence, PMI, Food Prices

- New Zealand's economy relies heavily on foreign capital, so its economic growth prospects look grim.

- PMI numbers are highly anticipated.

- Cautious on the currency, but risk is probably to the downside.

Swedish krona (SEK): Bearish

Watch: Industrial Production, CPIF, Unemployment Rate

- Although treated as a quasi-safe-haven recently, cash flows will slow as the economy decelerates.

- The currency will trade narrowly in the short term, and deflate in the future with the global economy.

Mexican peso (MXN): Bearish

Watch: Consumer Confidence, CPI, Trade Balance

- The peso has weakened 20% since July.

- Risks in Europe threaten the currency's value, but positive data from the U.S. could have a positive effect.

- Cautious on the MXN until there's greater transparency in global data.

Russian ruble (RUB): Bullish

Watch: Trade Balance, Producer Prices

- The sell-off in rubles is unjustified because of the country's strong external position.

- The country has lots of FX reserves and a strong current account, though capital could leave the country because of the electoral cycle.

- Capital outflows are a risk, but bullish in the medium-term.

Polish Zloty (PLN): Bearish

Watch: Inflation, Current Account, Money Supply

- Intervention caps the downside risk.

- Even so, slowing growth, a strong role in the local bond market, and credit tightening suggest a weaker Polish Zloty.

- Sell the PLN on rallies.

Turkish lira (TRY): Bearish

Watch: Industrial Production, Current Account

- Central bank intervention is capping downside risk, so the Turkish lira could be a relative outperformer.

- Deteriorating global economic conditions are still at play, though.

South African rand (ZAR): Bearish

Watch: Gross Reserves, Manufacturing, Gold Production

- High market correlation mean the South African rand will probably be volatile in the short-term.

- USD/ZAR is probably on the rise, with bond market outflows and global economic pressures.

Brazilian real (BRL): Bearish

Watch: Inflation IPCA, FGV CPI, Trade Balance

-The Brazilian government will continue cutting interest rates to promote growth as commodities decline.

- A USDBRL ceiling, however, will limit weakening and stem downside risks.

- Bearish on the real, despite a 23% weakening since July.

But make sure you know who's in charge of these currencies.

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