Risk assets are fluctuating following a recent rally as debate intensifies over whether the bull cycle is about to turn. Morgan Stanley is among those who think it is, and sees the recent rebound in risk as purely tactical. What does this mean to currencies? Good support for JPY and EUR at the expense of the dollar, the bank said.
Japan and the euro area have sizeable net foreign asset positions in USD and the money is likely to return home at the expense of USD when sentiment turns. Equity prices topping out could force investors to withdraw these assets to avoid losses. This suggests USD gains today may just be temporary.
Source: Bloomberg Pro Terminal
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