Morgan Stanley turns neutral on dollar with bullish skew, stays bearish on yen
At a Glance
Morgan Stanley's recent shift to a neutral view on the US dollar with a bullish skew indicates a preference for buy-the-dips strategies, especially in light of potential energy shocks and risk aversion. This transition follows their previous underestimation of dollar strength, as outlined in a recent commentary, where they highlight that any dollar weakness could be fleeting ('Per the full note ...'). Furthermore, their bearish outlook on the Japanese yen suggests continued support for USD/JPY, which could press against intervention thresholds by the Bank of Japan (BoJ). Currently, USD/JPY hovers around 155.81, close to the upper range of current market expectations, where intervention risks are heightened.
Key Takeaways
- 01Morgan Stanley adopts a neutral view on the dollar with a bullish skew, favoring buy-the-dips.
- 02The bearish stance on the yen suggests USD/JPY's range is crucial as intervention risks rise.
- 03Strength in energy prices could bolster the Norwegian krone against the euro and Swedish krona.
- 04Recent shifts in positioning reflect a broader reconsideration of dollar strength after a weak payroll report.
Full Analysis
What the desk is arguing
Morgan Stanley's neutral stance on the dollar, coupled with a bullish skew, shifts their strategy towards buying dips, particularly as external factors such as rising energy prices and risk aversion come into play. According to the note, this renewed perspective comes just two weeks after a review where the strategists acknowledged their earlier weak-dollar forecast was incorrect.
To support their view, Morgan Stanley points to the implications of Japanese yen weakness and how this reinforces their bearish outlook. They indicate that if USD/JPY approaches the upper end of its range, the potential for intervention by Japanese authorities rises, especially since US officials have marked yen weakness as a concern. The current spot at 155.81, poised near significant intervention risk levels, underscores this positioning.
Where it sits in our coverage
Our consensus target for USD/JPY stands at 154.0, with firm spreads ranging from 149.0 for Commerzbank to 161.7 from TMGM. Specific Dec-26 targets include:
- Rabobank: 145.0
- Nomura: 165.5
- Barclays: 149.0
This outlook aligns closely with the consensus, though it leans towards the higher end of expectations given the prevailing market dynamics, notably the intervention threshold considerations by the BoJ.
How other firms see it
In line with Morgan Stanley's view, several firms like RBC and SocGen maintain bearish outlooks on the yen, with targets around 156.0 and 158.0 respectively for Dec-26. Conversely, Commerzbank is among the contrary views, forecasting a more significant drop to 149.0.
The implications of Japanese monetary policy and potential market interventions make the trajectory of USD/JPY critical, particularly with the current energy market volatility playing an integral role in shaping FX positioning in the near term.
Market Implications
Traders should monitor USD/JPY closely as it approaches the upper bounds of the trading range, particularly around 156. The potential for BoJ intervention and shifts in energy prices are also factors that could influence market movements.
USD/JPY — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
UOB | Bearish | 159.60 |
Bank of America | Bullish | 149.00 |
Rabobank | Bullish | 145.00 |
From the original
Morgan Stanley's buy-the-dips approach suggests that any dollar weakness may prove short-lived, especially if energy prices or risk aversion rise again. The bearish yen view keeps USD/JPY near the upper end of its range in focus, where the risk of Japanese intervention rises, par
Related speeches
4 itemsGlobal FX: Broader impacts from the dollar bid
The J.P. Morgan commentary highlights the recent strength of the dollar and its implications for currency markets, particularly regarding potential interventions in the JPY. Per the full note [source], the bank suggests that the dollar's upward trajectory may prompt Japan to reconsider its stance on currency interventions to stabilize the JPY. Given recent economic data and strategic positioning, this movement warrants close attention from traders, especially in light of the potential for shifts in the BoJ's policy framework as the market grapples with U.S. dollar strength.
USD/JPY Outlook: Fed Tightening Will Boost The Dollar-Yen Rate Say Morgan Stanley, Target Of 118.0 - Exchange Rates Org UK
The desk anticipates that the USD/JPY exchange rate will rise, driven by the Federal Reserve's tightening monetary policy, with a target of 118.0 as indicated by Morgan Stanley. Per the full note, the expectation is that the Fed's actions will strengthen the dollar against the yen, particularly as market participants adjust their positions in light of potential rate hikes. This aligns with a broader consensus among several firms, although there are notable divergences in target levels. With no major economic events on the calendar in the next month, market focus will remain on the Fed's policy trajectory and its implications for USD/JPY.
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