Do you want to know where Morgan Stanley wants to get in a short EURGBP trade?

Author: Ryan Littlestone | Category: News

The latest form the great Morgan Stanley FX weekly report

This week Morgan Stanley want to add a short EUGBP position to their books. They want to short at 0.8650 for 0.8000 with a stop at 0.8800.

"In an environment of carry support and market calm, we think the
focus has moved away from worries after Brexit. Theresa May has
set out her plans to trigger article 50 in March with enough detail
that should already be priced into the market. GBP is currently
undervalued and has stabilised, which we think offers a strategic
opportunity to buy. In contrast, Eurozone political risks stay high
as we get closer to elections. The ECB is unlikely to change its
accommodative stance as inflation rates remain wide across the
Eurozone. EURGBP is about to break below its 200DMA, a
support held since mid-2015, which we think will provide more
downside momentum"

For once I can't fault their entry as it's right on the 100 dma.

EURGBP daily chart

I can however gripe about their exit down at 0.8000 which takes in no account of the TA on the way down there. They've rightfully highlighted the 200 dma and its support role but seem certain it's ready to break. Support is looking strong at 0.8330 also. I might actually be interested in this trade myself but I'd take some or all off the table if the 200 dma held (and then maybe buy it), and I'd continue to play between the two ma's. If the 200 dma broke you could enter or add to a short position on a confirmed break, then do the same down with a TP/reverse at 0.8330. Just my 10 cents.

They still maintain their AUDUSD short at 0.7540 TP 0.6900 SL 0.7800,

"Even with carry currencies doing well we think that Australian
economic data may weaken in line with the housing market.
Weakness in the housing market may cause the RBA to consider
cutting rates later in the year which is not yet in the price. That
being said, the AUD has performed well as commodity prices
continue to rise and the market continues to reduce long USD
positions. We keep a tight stop at 0.78."

long USDJPY at 112.50 TP 120.00 SL 110.00,

"Even with the USD setback we have chosen to keep our long
USDJPY trade as we believe the BoJ is going to find it difficult to
move away from yield curve control (click here for more) and the
pair will likely be supported by the positive risk environment.
With high debt levels in Japan and still having not reached the 2%
inflation target, the BoJ should keep expanding its balance sheet.
The risk to this view comes from the US administration's opinion
on foreign trade partners' currencies. The Trump-Abe meeting was
cordial and so we don't expect any immediate risks coming from
this angle. We keep our stop at 110 as below here we would need
to rethink the USDJPY and USD strategy."

and short EURUSD at 1.0650 TP 0.9900 SL 1.0850.

"The USD side of this pair is becoming more volatile but we stick
with this position as an accommodative ECB should limit the
EUR's upside. Widening EMU peripheral spreads are going to be
difficult to contain without reduced political volatility or the ECB
keeping monetary conditions extremely loose. With inflation rates
remaining widely different across the Eurozone members, the ECB
may need to set monetary policy for the weakest link, causing the
loose policy to limit the upside for the EUR. That said, the USD
side is expected to become more volatile and needs to be
watched closely and is therefore a risk for this trade."