Morgan Stanley Research adopts a bearish bias on EUR/USD, expressing this view by adding a short exposure to its recommendation portfolio targeting a move towards 1.03, with a stop at 1.1350.

"One of the key drivers of EUR strength against the USD over the past couple of months has been the shift in interest rate differentials in the EUR's favor. EUR has gained as terminal rate pricing for the ECB has risen relative to that for the Fed. That source of support for the EUR may now have run its course, for two reasons," MS notes. 

"First, ECB policy appears to have shifted its emphasis from interest rates toward using the balance sheet as a means of tightening policy. Second, the ECB emphasized the ongoing pass-through of monetary policy tightening to the banking system. As a result, we expect that lower market pricing for the ECB terminal rate will weigh on EUR. We continue to recommend short EUR/USD positions targeting 1.03," MS adds.