Morgan Stanley on USD - FJElite
USD longs look overly positioned and technically overstretched. With EUR/USD at the key 1.14 support, risks are the USD rally at least takes a pause.
Limited Fed forward guidance means the USD has greater capacity to overshoot - but overshooting risk is symmetric. A weak CPI print could see a clear reversal.
With EUR/USD at the key 1.14 support, a technical break raises risks of a significant overshoot to as low as 1.10. GBP/USD shorts are a good near-term hedge.
We maintain our bearish USD view so long as Fed hikes remain off the table, but long FX vol is a better hedge for what could be volatile Fed pricing.
The FOMC minutes may be an underpriced FX risk event, but CPI on July 14th remains the clearest fundamental catalyst.
