Investment bank Morgan Stanley reiterated in a recent note to clients its bullish USD conviction and expectations for EUR/USD to fall to 1.0300.
The bank said the recent softer-than-expected China data augurs poorly for the eurozone outlook given the economic linkages.
It added that the break in EUR/USD below 1.0900 is an important technical signal, and that it expects USD-upside momentum to continue, weighing on the pair.
GDP and CPI were in line with expectations, it said, though sentiment metrics continue to soften.
Morgan Stanley also noted the limited technical support below 1.08 and that the recent close below the 100-daily moving average at 1.0810 suggests continued downside momentum.
The bank's initial bullish USD view and EUR/USD downside potential rested on its belief that the consensus was too complacent about the global growth outlook and it is expecting events and data to shock the market out of its complacency from two angles.
The first is risk sentiment amid concerns over U.S. growth outlook resulting in safe-haven demand for the dollar and the second is reduced appeal for the rest of the world where it cited peak ECB pricing and complacency over the China outlook which would reduce the appeal of assets outside the U.S.
Forward looking FX options reflect a small increase in EUR/USD downside risk premium for now, but that would certainly increase and reward those holding EUR put/USD calls as hedges if recent spot weakness extends.
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