When EUR/USD was trading around 1.0600 in October, Morgan Stanley made a call for parity by April 2024 and although EUR/USD has risen to 1.1017 since, its most recent strategy research note still thinks that target can be achieved.
While the bank says that the 10% drop now required is large, such a move is not unheard of and cites the EUR/USD plunge in 2022.
It says the USD sell-off may have run its course and at a minimum, consolidation may be in store, but current levels also look attractive to sell, with a stop above 1.1000.
In summary, Morgan Stanley thinks growth and rate divergence, particularly relative to expectations should continue.
It thinks long end German bonds are too high and have room to ease, dragging on EUR.
December's central bank policy announcements could certainly impact EUR/USD if the Fed pushes back against market pricing and/or the ECB forecasts lower inflation which would endorse the recent shift in market pricing for earlier rate cuts.
FX option markets are highlighting the potential volatility risk from those central bank meetings and next week's U.S. NFP jobs data.
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