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EUR/USD: Trading A Corrective Top – Morgan Stanley

Two days to go to the ECB meeting and the tension is rising. What do the charts tell us? Here is the view from Morgan Stanley:

Here is their view, courtesy of eFXnews:

The ECB will be in focus when it meets on Thursday, notes Morgan Stanley.

“With negative rate  criticism becoming widespread, reaching from the G20 towards a weekend report by the BIS suggesting that long-term costs of negative rates exceed short-term benefits, markets are becoming increasingly sceptical about this instrument. The BIS makes the valid point suggesting that negative rates could lead to behavioural changes, citing Switzerland as an example where the move to wards negative rates made mortgage yields move higher,” MS adds.

Hence, the ECB may not deliver on the rates front more than what is currently priced in.

Instead, it may consider other innovative tools aim at pushing more money into the system. Different to December when easing expectations grew ahead of the ECB meeting, markets have become more realistic, suggesting  the ECB delivering beyond expectations could put the EUR under renewed selling pressure,” MS argues.

On Friday, EURUSD tested its 200DMA,  coming in at 1.1045, but failure to develop a daily closing price above 1.10 today suggests to us thata corrective high has been traded, opening renewed downside potential,” MS projects.

In line with this view,  MS maintains a short EUR/USD position from 1.1360, with a target at 1.07, and a revised profit-stop at 1.1070.

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Yohay Elam

Yohay Elam

Yohay Elam: Founder, Writer and Editor I have been into forex trading for over 5 years, and I share the experience that I have and the knowledge that I've accumulated. After taking a short course about forex. Like many forex traders, I've earned a significant share of my knowledge the hard way. Macroeconomics, the impact of news on the ever-moving currency markets and trading psychology have always fascinated me. Before founding Forex Crunch, I've worked as a programmer in various hi-tech companies. I have a B. Sc. in Computer Science from Ben Gurion University. Given this background, forex software has a relatively bigger share in the posts.