Summary of the Conference Call Transcript Company/Industry Involved - **Company**: Morgan Stanley - **Industry**: Foreign Exchange (FX) Strategy Core Points and Arguments 1. **USD Bear Regime**: The Federal Reserve's shift in reaction function indicates a prolonged USD bear regime, leading to a significant and broad sell-off of the USD [7][10][11] 2. **Expansion of USD Sell List**: The USD sell list has been expanded to include AUD (Australian Dollar) and CAD (Canadian Dollar), in addition to existing recommendations for EUR/USD and USD/JPY [7][18] 3. **Market Dynamics**: The current market dynamics show falling real rates and widening breakevens, contributing to widespread USD weakness [7][10][11] 4. **Impact of US Government Shutdown**: A potential US government shutdown is expected to be negative for the USD, with the extent of the impact depending on the Fed's perceived reaction [7][35][36] 5. **Carry Trade Considerations**: The carry trade remains a significant headwind for USD shorts, but market expectations suggest a decrease in the DXY's carry by nearly 100 basis points over the next 12 months, which would support USD shorts [7][19][29] 6. **Performance of Currencies**: Historical data indicates that currencies tend to strengthen against the USD 67-84% of the time during a USD bear regime [12][16] 7. **Trade Recommendations**: Specific trade ideas include maintaining long positions in EUR/USD, GBP/CHF, and AUD/USD, while shorting USD/JPY and USD/CAD [21][22] Other Important but Possibly Overlooked Content 1. **Fed's Focus on Employment**: The Fed's current focus on employment over inflation suggests a longer duration of the USD bear regime, as market participants may expect a more significant response to labor market changes [11][17] 2. **Risk Premium from Government Shutdown**: The estimated risk premium for the USD due to a government shutdown is currently around -4%, indicating a potential increase in USD-negative sentiment [33][36] 3. **Long-term Catalysts for AUD and CAD**: Local factors such as RBA policies and FX-hedging flows are identified as long-term catalysts for AUD, while CAD is expected to decline due to its sensitivity to rate differentials and productivity boosts from trade barrier removals [22][19] This summary encapsulates the key insights from the conference call, focusing on the implications of the USD bear regime and the strategic recommendations provided by Morgan Stanley's FX strategy team.

Summary of Key Points from Morgan Stanley's G10 FX Strategy Conference Call Industry and Company Involved - **Industry**: Foreign Exchange (FX) Market - **Company**: Morgan Stanley & Co. International plc Core Insights and Arguments 1. **Bearish Outlook on USD**: The bearish case for the USD remains strong due to low carry-to-volatility ratios and limited upside from US rates, alongside potential political and macroeconomic risks [8][9][10] 2. **Comparison with Other Currencies**: The USD's carry-to-volatility ratio is unattractive compared to alternatives like GBP/CHF, making it a poor choice for carry-focused strategies [8][12] 3. **Market Pricing Adjustments**: Significant shifts in market pricing occurred after the July FOMC meeting, limiting further upside from US rate expectations [8][9] 4. **Asymmetric Downside Risks**: Policy and macroeconomic risks create asymmetric downside risks for the USD, with potential for a selloff even without a significant rise in US unemployment [8][21] 5. **Investor Sentiment**: There is little reason for investors to buy the USD, as common justifications for long positions are deemed insufficient [10][11] 6. **Fed Rate Expectations**: Economists expect the Fed to cut rates below 3% in 2026, which could further weaken the USD [9][10] 7. **Risk Skew**: The balance of risks around the USD is tilted negatively, with a higher likelihood of a downward move rather than an upward one [19][20] 8. **Trade Recommendations**: Suggested trades include maintaining long positions in EUR/USD and GBP/CHF while shorting USD/JPY, with specific entry levels and targets provided [25][27] Additional Important Insights 1. **Economic Activity Monitoring**: The company emphasizes the importance of monitoring economic activity data alongside labor market data, as a decline in activity could lead to USD selling despite stable unemployment rates [23][24] 2. **Long-Term Narrative**: For medium-term investors, the narrative towards a weaker USD remains strong, while near-term investors may find the negative carry associated with USD trades unappealing [25] 3. **Valuation Methodology**: The report includes a detailed valuation methodology and risks associated with the recommended trades, highlighting the importance of understanding the underlying factors influencing currency movements [26] This summary encapsulates the key points discussed in the conference call, providing a comprehensive overview of Morgan Stanley's current outlook on the USD and related currency strategies.