Summary of Morgan Stanley's G10 FX Strategy Conference Call Industry Overview - **Industry**: Foreign Exchange (FX) Strategy - **Date**: January 16, 2026 Key Points by Currency USD (US Dollar) - **View**: Neutral - **Skew**: Bearish - **Insights**: - The DXY is expected to remain neutral as investors are holding back until clearer trends emerge - Anticipated USD weakness against risk-sensitive currencies such as SEK, AUD, and CAD [2][12][16] EUR (Euro) - **View**: Neutral - **Skew**: Bullish - **Insights**: - Upside risks to EUR/USD due to potential USD weakness - Increased negative risk premium on USD could lead to gains in EUR/USD, especially amid domestic and geopolitical volatility [3][17] JPY (Japanese Yen) - **View**: Neutral - **Skew**: Neutral - **Insights**: - A resilient US economy and fiscal concerns in Japan may pressure JPY - Potential for imminent FX intervention as indicated by recent comments from the Ministry of Finance [4][18] GBP (British Pound) - **View**: Neutral - **Skew**: Bearish - **Insights**: - Tactical bearish stance ahead of inflation and employment data, which may trigger a GBP sell-off - Risks of dovish repricing by the Bank of England could amplify GBP weakness [5][19] CHF (Swiss Franc) - **View**: Neutral - **Skew**: Neutral - **Insights**: - Potential downside risks for EUR/CHF due to US tariff rulings - Reduced intervention risk from the Swiss National Bank (SNB) [6][20] CAD (Canadian Dollar) - **View**: Bullish - **Skew**: Bullish - **Insights**: - Recommendation to short USD/CAD as Canada diversifies its export partners - Rate convergence through 2026 favors CAD [7][21] AUD (Australian Dollar) - **View**: Bullish - **Skew**: Bullish - **Insights**: - Recommendation to long AUD/USD, with expectations of outperformance ahead of CPI data - Low pricing for a February RBA hike could rise on strong inflation [8][22] NZD (New Zealand Dollar) - **View**: Neutral - **Skew**: Neutral - **Insights**: - Mixed labor data and a hawkish shift from the RBNZ have limited NZD's performance - Expected to rise against USD but lag behind AUD [9][13][22] SEK (Swedish Krona) - **View**: Bullish - **Skew**: Bullish - **Insights**: - Positive outlook due to global risk demand and growth expectations - Tactical indicators suggest EUR/SEK may be oversold [14][23] NOK (Norwegian Krone) - **View**: Neutral - **Skew**: Neutral - **Insights**: - Strong correlation to oil prices may limit gains - Risks of a dovish Norges Bank pivot could weigh on NOK [15][25] Additional Insights - **Trade Ideas**: - Short USD/CAD at 1.3799 with a target of 1.34 - Long AUD/USD at 0.6604 with a target of 0.6900 - Short EUR/SEK at 10.9101 with a target of 10.20 [15][26] - **Market Sentiment**: - Investors are cautious and holding back on positions until clearer trends emerge, indicating a range-bound DXY for the near term [16] - **Economic Indicators to Watch**: - Key economic data releases such as ADP Employment, GDP Revision, Jobless Claims, and CPI are critical for future currency movements [16][17][19] This summary encapsulates the key insights and recommendations from Morgan Stanley's G10 FX strategy conference call, highlighting the current views on major currencies and the underlying economic factors influencing these perspectives.

Summary of Morgan Stanley's G10 FX Strategy Conference Call Industry Overview - The conference call focuses on the G10 foreign exchange (FX) strategy, analyzing various currencies and their outlooks in the context of global economic conditions and central bank policies. Key Points by Currency 1. USD (DXY) - **View**: Neutral - **Skew**: Bearish - **Insights**: - Increasing downside risks for the DXY due to soft US economic data and hawkish foreign central banks - Limited investor appetite to engage, suggesting a neutral position with a downside bias into year-end [2][3][19] 2. EUR - **View**: Neutral - **Skew**: Bullish - **Insights**: - Upside risks for EUR/USD are increasing, with potential divergence between ECB and Fed policies in 2026 - The largest impact on EUR/USD is expected to come from the USD side [4][21] 3. JPY - **View**: Neutral - **Skew**: Neutral - **Insights**: - Few catalysts to prevent JPY weakness amid uncertainty regarding the 2026 budget - Any intervention by the Ministry of Finance (MoF) could significantly alter the current trend [5][23] 4. GBP - **View**: Neutral - **Skew**: Neutral - **Insights**: - GBP's status as a high carry/volatility currency is diminishing - The Bank of England's recent hawkish tone may delay the need to reprice terminal rates lower [6][24] 5. CHF - **View**: Neutral - **Skew**: Bearish - **Insights**: - Bearish skew maintained due to low volatility and absence of external catalysts - Fair value metrics suggest EUR/CHF should be around 0.92, indicating potential downward pressure [7][25] 6. CAD - **View**: Bullish - **Skew**: Bullish - **Insights**: - Soft US economic data contrasts with a recovery in Canadian data, favoring CAD - Recommendations include shorting USD/CAD due to favorable rate differentials [8][26] 7. AUD - **View**: Bullish - **Skew**: Bullish - **Insights**: - Rising private credit indicates strong domestic demand - A retest of 0.6700 is likely if RBA minutes are hawkish [9][27] 8. NZD - **View**: Neutral - **Skew**: Bullish - **Insights**: - Expected support for AUD/NZD around 1.15, with potential for a breakout above 1.16 - Factors include dovish RBNZ signals and fair valuation [10][28] 9. SEK - **View**: Bullish - **Skew**: Bullish - **Insights**: - Elevated global risk demand and a mildly hawkish Riksbank support SEK's outlook - Recommended to stay short EUR/SEK [16][29] 10. NOK - **View**: Neutral - **Skew**: Neutral - **Insights**: - Soft oil demand and potential Norges Bank cuts suggest NOK may lag behind SEK - Monitoring of oil prices and economic data is crucial [17][31] Additional Insights - The overall sentiment indicates a cautious approach towards USD, with expectations of a potential decline as investors prepare for 2026 - The divergence in central bank policies, particularly between the US and Europe, is a significant theme influencing currency movements [19][21] Conclusion - The G10 FX strategy reflects a complex interplay of economic data, central bank policies, and market sentiment, with specific recommendations for trading strategies across various currencies.

Summary of Morgan Stanley's G10 FX Strategy Update Industry Overview - The report focuses on the G10 foreign exchange (FX) market, analyzing various currencies against the US dollar (USD) and providing strategic insights for investors. Key Currency Views USD (US Dollar) - **View**: Bearish - **Skew**: Bearish - The DXY is expected to weaken, particularly against EUR, JPY, and GBP. The risk premium has largely driven the post-Liberation Day move, with potential for further increases in risk premium [2][12][17]. EUR (Euro) - **View**: Bullish - **Skew**: Bullish - EUR/USD is under upward pressure due to increased USD-negative and EUR-positive risk premiums, alongside a compression in Fed-ECB rate expectations [3][18]. JPY (Japanese Yen) - **View**: Bullish - **Skew**: Bullish - Optimism regarding a potential Bank of Japan (BoJ) rate hike and concerns about the US labor market may lead to speculation about policy convergence, reducing appetite for JPY carry trades [4][19]. GBP (British Pound) - **View**: Bullish - **Skew**: Bullish - GBP/USD is seen as an attractive option for investors, reflecting a carry-neutral expression of a USD-negative, Europe-positive view. The carry remains crucial for GBP's outperformance [5][21]. CHF (Swiss Franc) - **View**: Neutral - **Skew**: Bearish - Short CHF positions are attractive from a carry perspective, but much of the CHF-negative tariff news is already priced in, potentially leading to underwhelming growth expectations [6][22]. CAD (Canadian Dollar) - **View**: Bullish - **Skew**: Bullish - Anticipation of a decline in USD/CAD, even if upcoming CPI shows signs of deceleration. The convergence of US-Canada rates is expected to weigh on USD/CAD [7][25]. AUD (Australian Dollar) - **View**: Bullish - **Skew**: Bullish - Strong domestic fundamentals and elevated yields could lead AUD/USD to re-test 0.6600, with potential upside towards 0.6900 if CPI surprises positively [8][26]. NZD (New Zealand Dollar) - **View**: Neutral - **Skew**: Neutral - A 25bp cut by the Reserve Bank of New Zealand (RBNZ) is fully priced in, but stronger-than-expected growth raises the risk of an NZD-positive surprise if the OCR forecast does not decline [9][27]. SEK (Swedish Krona) - **View**: Neutral - **Skew**: Neutral - The upcoming Riksbank meeting is not expected to be a major catalyst, but a rate cut in September is seen as underpriced [14][29]. NOK (Norwegian Krone) - **View**: Neutral - **Skew**: Bearish - A bearish tilt on NOK is noted, with expectations of a lower trough rate from Norges Bank, which may not be fully priced in by the market [16][30]. Additional Insights - The report emphasizes the importance of monitoring upcoming economic indicators such as CPI, jobless claims, and PMIs, which could influence currency movements [17][21][25]. - The analysis suggests that the USD's decline since April is primarily driven by risk premium dynamics, with potential for further declines if US rates converge lower towards global peers [12][17]. Trade Ideas - **Long GBP/CHF**: Entry at 1.0927, target 1.12, stop at 1.055 - **Short USD/JPY**: Entry at 147.04, target 135, stop at 151 - **Long EUR/USD**: Entry at 1.1686, target 1.20, stop at 1.11 [16].

Summary of Key Points from the Conference Call Industry and Company Overview - The conference call focuses on the **US Dollar (USD)** and its expected performance in **2025**, drawing parallels with **2017** and **2018**. The analysis is provided by **Morgan Stanley Research**. Core Insights and Arguments 1. **USD Decline in 2017**: The USD declined in 2017 due to trade policy, global growth, and European politics, with fiscal and Fed policy being less supportive than anticipated. Similar factors are expected to contribute to a decline in 2025 [1][4][68]. 2. **Trade Policy**: In 2025, the USD is expected to be negatively impacted by trade policy, similar to 2017. The administration is likely to use tariffs as a negotiation tactic, particularly with China, Canada, and Mexico [77][78][80]. 3. **Fiscal Policy**: The fiscal policy is not expected to be fully incorporated into growth expectations until a budget reconciliation bill is passed. This mirrors the situation in 2017, where deficit forecasts remained unchanged until late in the year [4][68][106]. 4. **Global Growth Expectations**: Global growth in 2025 is anticipated to align with expectations, contrasting with the faster-than-expected growth in 2017. This is expected to have a neutral or slightly negative impact on the USD [4][113]. 5. **European Politics**: Political stability in Europe is expected to improve, reducing EUR-negative risk premiums, similar to the underperformance of EU-skeptical parties in 2017 [4][69][117]. 6. **Central Bank Policies**: The Fed is expected to cut rates, while the ECB's policies may lead to a stronger EUR against the USD. This reflects the changes in central bank policies observed in 2017 [4][119][125]. Additional Important Insights 1. **Tariff Expectations**: The expectation of gradual increases in tariffs on imports from China and the Euro Area is highlighted, with a focus on the potential impact on the USD [78][99][103]. 2. **Investor Sentiment**: There is a significant divergence in investor expectations regarding trade policy, with many believing that tariffs will not escalate as much as previously anticipated [91][92]. 3. **Deficit Forecasts**: The analysis indicates that deficit expectations have widened significantly since the 2024 election, similar to the dynamics observed in 2016-2017 [108][109]. 4. **Market Positioning**: The USD has recently declined due to positioning by investors who expected more aggressive tariff measures than those announced [87][88]. This summary encapsulates the key points discussed in the conference call, providing a comprehensive overview of the expected trends in the USD and the influencing factors.