Morgan Stanley: Top trade for 2024 – Selling EUR/USD, targeting parity by end of Q1

It takes two sides to make a market. Earlier today, Bank of America was out with a bullish call on EUR/USD for 2024 but Morgan Stanley is taking the opposite side.

Analysts at Morgan Stanley highlight their top trades for 2024 and that includes selling EUR/USD around the current level of 1.10, with a target of reaching parity (1.00) by the end of the first quarter of 2024. This strategy is based on the expectation of continued US economic outperformance and the evolving global economic landscape.

Key Points:

US Growth Outperformance: Morgan Stanley forecasts continued US growth outperformance into 2024, both in absolute terms and relative to expectations. This is expected to support the USD strength.Difficulty in USD Weakness Pathway: The analysis suggests that finding a pathway to significant USD weakness through early 2024 remains challenging, though it may become more feasible as the year progresses.Shifting Growth Asymmetry: The expected decline in real policy rates could lead to a more balanced growth outlook globally. Investors are anticipated to shift their focus from current recession concerns and restrictive policy rates to a future where rates return to neutral, and economies like China and Europe recover from weaknesses.Technical Recessions in Europe: Technical recessions in the eurozone, Sweden, and the UK are expected to lead these central banks to initiate rate cuts in the second quarter. Such economic conditions and falling rates are likely to weigh on their respective currencies.EUR/USD Forecast: Morgan Stanley predicts EUR/USD will return to parity by Q1 2024 and remain around that level for most of the year.

Conclusion:

Morgan Stanley’s trade recommendation for 2024 focuses on selling EUR/USD, targeting a return to parity by the end of Q1 2024. This strategy is underpinned by the expectation of continued US economic outperformance, technical recessions in parts of Europe, and the anticipated shifts in global monetary policy. While the path to significant USD weakness is seen as challenging in the near term, evolving global economic conditions could make it more navigable as the year progresses.

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This article was written by Adam Button at www.forexlive.com.