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FX round-up: Morgan Stanley cautious on cable, says it's time to sell the US dollar

By Alexander Bueso

Date: Monday 19 Nov 2018

FX round-up: Morgan Stanley cautious on cable, says it's time to sell the US dollar

(Sharecast News) - A weak reading on a widely-followed gauge for US housing and doubts around the likelihood of a US central bank rate hike at the end of the year saw the pound register a slight gain at the start of the week, although some analysts continued to exhibit caution in the face of Brexit and its associated risks.
As of 2034 GMT, cable was adding 0.22% to 1.28573, although against the single currency, Sterling was off by 0.14% at 1.1223.

"While the longer-term GBP outlook remains compelling, we are less constructive in the near term," analysts at Morgan Stanley said in a research note sent to clients.

Analysts at the investment bank said they were keeping a close eye on the 1.2665 level for cable, followed by 1.2450 should that level fail to hold.

Mislav Matejka at JP Morgan appeared to be in a similar frame of mind, telling clients: "The proposed deal will go to the parliament for a vote over the next 2-3 weeks, but we expect it to fail, at least the first time around. The eventual passing of the deal, probably some time between mid-December and mid-January, will largely depend on things getting significantly worse from here in order for enough rebel MPs to fall back in line.

"This path is likely to flirt with any and all of the following along the way: no-deal, leadership challenge and new elections, with the material prospect of a Labour government."

The US National Association of Home Builders' housing market index slipped from a reading of 68 for the month of October to 60 in November, following well short of forecasts for a print of 67.

Nevertheless, despite the broad-based declines in the survey's subindices, builder sentiment remained "positive", although consumer demand had tapered off due to concerns around higher interest rates, said analysts at Barclays Research.

Euro/dollar meanwhile was up 0.32% to 1.14531 and dollar/yen off by 0.24% at 112.529.

From a bird's eye view, the US dollar spot index was retreating 0.28% to 96.1910.

As an aside, according to the latest US CFTC figures, over the week ending on 13 November, speculators' net long positions on the US dollar index stood at 40,513 contracts, a 52-week high, which was up from 40,282 contracts during the previous week.

Despite that and on a 'contrarian' note, analysts at Morgan Stanley told clients on Monday that it was time to sell the US dollar.

"Widening US credit spreads and falling equities and Treasury yields are a signal that the outperformance of US growth relative to the rest of the world may have passed its peak," they said.

"We expect a weaker USD as relative financial conditions tighten, weighing on the domestic outlook."

The Aussie on the other hand was on the back foot versus the Greenback, slipping by 0.59% to 0.72918, as were many emerging market currencies.

Against Brazil's real, the US dollar was climbing 0.57% to 3.7606 and versus the Mexican peso by 0.95% to 20.3582, but in its cross with the Russian rouble it was down by 0.58% at 65.6041.

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