Morgan Stanley to Sell US Dollar

Morgan Stanley strategists suggest that the time has come to sell the US dollar. They expect further US dollar weakness and the US dollar index may reach the 95 level. After surging 2.9% last week, the gauge dropped 0.3% on Monday at 98.409.

The world’s financial markets including forex have reached their low points. Stocks have bottomed out after the global spread of the coronavirus has roiled markets in recent weeks.

Investors should start adding risk and sell the US dollar. Strategists reported the slump in stock markets and a widening of credit spreads have caused the tightening of financial conditions.

Global financial markets are now in a bottoming phase. However, central banks offer support measures to ease and stabilize the situation.

Reason for the Addition of Risk

Strategists said Morgan Stanley has entered the final phase of the severe and acute bear market. This means it is closer to the “early stage recovery” phase than it was three weeks ago. For this reason, they have started suggesting the addition of risk.

The coronavirus has caused volatility and spurred a flight to haven assets including the US dollar and FX markets. The Federal Reserve cut interest rates to almost zero late Sunday and announced massive bond buying. This decision adds to the stimulus plans of central banks and governments around the world.

The suggestion to sell the US dollar came before the Federal Reserve’s latest action. They expect the interrelated combination of aggressive Federal Reserve’s stimulus and tactical risk rebound will further drive the USD to decline.

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Morgan Stanley Advises to Sell the USD

Strategists advise long-term investors to consider adding more equity risk to portfolios and sell the US dollar.

In forex trading, low prices in risk assets and high volatility drove them to suggest the buying of other currencies. They recommend buying the euro versus the dollar with a target of 1.16 and a “fairly wide stop” at 1.08. Another good buy is the Australian dollar versus the greenback targeting 0.68 with a stop at 0.60.

The recent 20%-plus drawdown in global equities is one of the most aggressive movements on record. With this kind of market movement, they are looking across asset classes. They believe the cost-benefit of risk-taking is increasingly moving in a positive direction.

These recommendations from Morgan Stanley came before the Federal Reserve has taken emergency actions to stabilize the economy.