USD: Near-Term Trend Change. Bullish.

We expect USD to have some upside correction in the next few weeks as currency appreciation in low-yielding countries drive the global risk-off sentiment. Markets have begun realising the costs of a weak USD, prompting equity and commodity markets to react negatively to USD weakness. Technically, the USD has developed a key reversal formation, further supporting our near-term bullish USD view. We like buying USD against EM and commodity currencies such as AUD and CAD.

EUR: Low Yielders to Outperform. Neutral.

We believe EUR will outperform high beta EM and commodity currencies as USD rallies given the ECB's inability to combat global disinflationary forces. In this environment, falling inflation expectations increase real yields as nominal yields are difficult to push lower with much of the yield curve negative. We believe that EUR is still likely to be negatively impacted by political developments in the future with Brexit a potential catalyst in the near-term.

JPY: Bullishness Remains. Bullish.

We stick to our bullish JPY call for various reasons. First, real yields in Japan are rising as the BoJ’s reluctance to ease causes inflation expectations to fall faster than nominal yields, supporting JPY appreciation. Second, our expectations for a near-term risk sell-off could mean a break of key levels in USDJPY and AUDJPY, triggering hedging and repatriation flows from Japanese accounts, leading to significant JPY buying. We like expressing our view through selling CADJPY.

GBP: Rally Running Out of Steam. Bearish.

We think the GBP rally has run its course for now as we expect risk appetite and commodity related currencies to decline in the coming weeks. In addition, we believe there is very little political risk premium priced into GBP today and so are entering a short GBPUSD trade. GBP volatility is likely to pick up as we approach the EU referendum date. The BoE's Inflation report is important this week, where we expect little change ahead of the referendum.

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CHF: Supported by Real Yields. Bullish.

In the near term, we expect CHF to appreciate vs EM and the high yield currencies, helped by increasing real yields and the global risk sell-off. Over the medium term, Brexit uncertainty, rising populism and migrant issues in Europe should also contribute to the currency strength vs the EUR. While USDCHF may go higher in the near term driven by USD strength, we prefer buying CHF against EM and commodity currencies.

AUD: RBA Breaks the Rally. Bearish.

The RBA's surprise rate cut resulted in the biggest one-day AUD decline since November 2011, causing AUD to break its technical uptrend since December, opening the door to more AUD downside. The correction in commodity prices that is likely to result from the recent strength in JPY and EUR should also put pressure on the AUD. We think AUD is likely to sell off along with risk in the near term, and would look to sell AUDUSD at 0.7580.

NZD: Looking to Sell. Bearish.

We like selling NZD in this current USD rally as we expect high carry commodity currencies to underperform. Long positioning in AUD and NZD should continue to unwind and the RBA's cut this week increases risks for the RBNZ to follow, particularly with the TWI above projections.

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