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Morgan Stanley: Even We Can't Believe How Fast The Euro Has Unraveled |
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Business Insider
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06 febbraio 2010
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Morgan Stanley's (MS) currency analysts have been bearish on the euro for some time, but even they are stunned by the speed at which everything is unraveling, and now they're downgrading it further
Having reached some of our targets earlier than anticipated, we have made some changes to our currency forecasts mainly centered around the euro. We now forecast EUR/USD to fall to 1.24 by year-end from 1.32 previously. We have also lowered our EUR/GBP forecast following the Bank of England’s move to pause its QE program. We see EUR/GBP at 0.83 by year-end and GBP/USD at 1.49.
Our global currency outlook for 2010 had one major theme which was a reversal in the “punish the printer” theme. Our thesis for currencies in 2010 was that the huge excess liquidity conditions that prevailed in 2009 and drove many currencies into misalignment would reverse in 2010 as central banks withdraw liquidity and the US economy outperforms. We expected exchange rates to move back towards fair value.
EuroThey continue:
Downgrading Our Outlook for the Euro
We are becoming increasingly concerned about the prospects for the euro. As Exhibit 4 shows the trade-weighted euro is overvalued by around 19% according to our models and a fall towards fair value would seem appropriate from here. The euro’s overvaluation has perhaps contributed to the growing strains within the Euro area as some of the weaker economies would presumably have had weak currencies through the crisis without the common currency. However, owing to the ECB’s “passive” QE policy, the euro has benefitted as the market punished the “active” printers (USD and GBP) in 2009. We define “active” printers as those who expanded their balance sheets by buying assets whereas the ECB supplied liquidity through tenders allowing the market to determine the demand for funds. The ECB’s exit strategy is therefore less complex, which is partially why the euro strengthened last year.
Source > businessinsider.com | feb 04
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