Sell the Euro/Dollar Exchange Rate Say Forecasters at Morgan Stanley

Analysts at Morgan Stanley tell us the euro dollar exchange rate (EUR/USD) has further to fall as the initiate a sell recommendation on the pair:

"We are cautious on the common currency, as we expect the EUR to gradually transition into being a funding currency on the back of European banks looking to lend abroad after the asset quality review.

(Please note that all FX quotes here are from the wholesale markets - your bank will affix a spread to the rate to derive profit. However, an independent FX provider will undercut your bank's offer, this can deliver up to 5% more currency in some instances.)

"Indeed, the smaller-than-expected take-up from the TLTRO operation could fuel market opinion that the ECB needs to do more easing, further weakening the EUR. ECB President Draghi’s speeches this week only further fuelled the notion that the ECB stands ready to do more."

Morgan Stanley are forecasting the euro dollar rate to fall down towards 1.2000.

Indeed, this is but one view that suggests geopolitical concerns, worriers over regional growth outlook and ECB easing expectations will likely continue to push EUR lower.

But - US Dollar Strength A Worry

The Greenback continued to sustain its recent rally following the release of American quarterly Final GDP data this morning, which was flat to forecast at 4.6% growth.

"This marks the 11th-straight week of gains for the greenback, a trend that is unmatched in the dollar’s history since it was floated from the gold standard in the early 1970’s. The historic rise in the greenback however is beginning to rattle global markets, as evidenced by yesterday’s over 260-point drop in the Dow Jones," says Omer Esiner at Commonwealth Foreign Exchange.

And those hoping for a correction lower should be aware that any dips will likely be shallow in nature: "While the USD showed a mild corrective bias through most of the European session yesterday, it remains well above the key support areas for the uptrend, and it is likely to take a clear piece of USD negative news for it to break lower," say Lloyds Bank.

Arresting EUR Declines Will be Difficult

Despite growing concerns regarding the strengthening USD, we continue to see little chance of respite for the euro dollar at this stage:

"The euro recovered from a 22-month low against the dollar yesterday as investors took some profits on the single currency’s impressive selloff. While day-to-day volatility could lead to some near-term strength in the euro, its medium to longer-term outlook remains broadly negative given the clearly divergent rate outlook in the U.S. and euro zone," says Esiner.

Euro Fundamentals Today

The Eurozone CPI data will be the main initial focus this morning, and after the slightly stronger than expected Spanish and German harmonised CPI data yesterday, the risks look clearly towards a number above the 0.3% y/y median.

"However, this was probably largely priced in by yesterday’s modest EUR/USD recovery, and we would not expect a major positive EUR reaction on the news this morning. Ahead of the CPI data there will also be interest in the latest German unemployment data, given continuing concerns that the German recovery is stalling, and if we see another rise in unemployment, the EUR is likely to struggle to make any ground beyond 1.2740, even if the EZ CPI data prove to be on the strong side," say Lloyds Bank Research in a morning note to clients.