EUR/USD To Break Beyond Previous High At 1.1366 Targeting 1.16 - Morgan Stanley
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Lower USD, higher EUR: A weaker USD, looser financial conditions and the Brexit risk event out of the way have meant that there are signs of businesses starting to grow around the world. We are not saying that all is rosy and that growth rates will reach average pre-2007 levels, but we believe that the FX markets right now will respond to changes in economic circumstances and surprises. In fact, the MSCI world equity index has become more correlated with global economic surprises, as noted by our equity colleagues.Economic data divergence between the eurozone and US should help EURUSD to break beyond the previous high at 1.1366, opening room towards our 1.16 target.
US investment down, eurozone investment up: The regional Fed surveys have also been pointing towards a flat reading in July. In contrast, eurozone activity has been stabilising, with the WSJ reporting that eurozone companies are planning to raise investment spending even after the Brexit vote. A larger proportion of companies in Germany, France and Spain were planning to increase capital spending relative to the previous survey in February. The ECB's corporate bond purchases pushing down borrowing costs and money supply data released tomorrow expected to have grown by 5%Y (M3) in July support the case for EUR-USD data divergence.