MS is keen on the euro against a basket of currencies
- Long EUR vs. USD, CHF, GBP and SEK
Analysts cite as positives:
- The recent EU debt proposal means that some of the risk premium for EU break-up risk which has been embedded in European assets since the eurozone debt crisis will abate.
- The creation of a new large and liquid (likely), higher-yielding AAA asset will attract inflows from real money investors and reserve managers alike and support EUR higher.
- We expect the EUR rally to come in stages - initially positioning and sentiment adjustment (no longer bearish) followed by active allocation to eurozone assets via equities as growth picks up.
And, risks for the view:
- Trade tension escalation creates safe-haven demand for USD
- Eurozone recovery disappoints
Forecasts:
- their base case is to 1.20 by Q2 2021
- 'bear' case is 1.114, 'bull' case is 1.26
