Synopsis:

Morgan Stanley sees this week as pivotal for EUR/USD, with multiple potential catalysts for an upside breakout. A shift away from the "US exceptionalism" narrative, coupled with upcoming US data and ECB policy signals, could fuel a decisive move above 1.0530, triggering a broader DXY selloff.

Key Points:

1️⃣ EUR/USD Needs a Break Above 1.0530 for DXY Selloff 📈

• Despite unwinding of DXY longs, EUR/USD has struggled to break its range.
• A breakout above 1.0530 is seen as the key trigger for further USD weakness.

2️⃣ US Data Could Undermine Dollar Strength 💵

• ISM Services and NFP will indicate economic momentum amid rising uncertainty.
• A labor market slowdown could weaken the "US exceptionalism" thesis, pressuring USD.

3️⃣ ECB Meeting Holds Potential for a Hawkish Surprise 🇪🇺

• Debates over "restrictiveness" and neutral rates could suggest a slower cutting cycle.
• Recent fiscal expansion and stronger core CPI may reinforce expectations for a less dovish ECB.

4️⃣ US Government Shutdown Risk as a Market Signal 🚨

• Investors eye fiscal expansion as key to the USD’s relative strength.
• Political uncertainty and a potential shutdown could further erode confidence in the dollar.

Conclusion:

Morgan Stanley views this week as critical for EUR/USD, with a range breakout potentially fueling a sustained DXY decline. US data, ECB policy tone, and fiscal risks all present opportunities for a shift in market positioning toward a weaker dollar.