Morgan Stanley shifts its risk outlook on the USD to neutral and recommends going long on JPY against the USD and other risk-sensitive currencies amid heightened concerns of a hard landing.
Key Points:
Risk Skew Adjustment:
- Morgan Stanley adjusts its risk skew on the USD to neutral in light of ongoing market turbulence and hard-landing fears.
Market Conditions:
- The current FX market is characterized by a “defense” regime, which may persist and potentially lead to a future USD bear market.
Long JPY Strategy:
- Historical trends indicate that the most effective trades during defense regimes involve being long on JPY, both against the USD and especially against risk-sensitive currencies.
Conclusion:
Morgan Stanley's analysis suggests a cautious approach towards the USD while favoring JPY as a more robust position in the current economic climate.
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