Given that USD has switched from a funding to an asset currency, there is now a large USD long position in place, which suggests that if the historical pattern of position-reduction is repeated this year, there is the risk of a USD-corrective setback, according to Morgan Stanley.
Indeed, as well as USD long positioning reaching an extreme, many technical indicators also point to current USD price action becoming over-extended and vulnerable to a correction. While we maintain our bullish USD view over the medium term, we would highlight the risk of a near-term corrective setback on seasonal position adjustment.
The firm went on to suggest,
Hence, we now recommend caution with USD long positions for the next few weeks.
In line with that view:
- MS tightened the profit-stop on its EUR/USD short to 1.2550. The trade entered at 1.2750, with a target at 1.20.
- MS also raised the entry level on its limit order to sell EUR/USD from 1.2550 to 1.26.