Investors are overwhelmingly bullish on the dollar, but from the perspective of Morgan Stanley analysts, this means it is time to sell.
Morgan Stanley analysts, led by David Adams, noted that investors generally expect the dollar to appreciate against competitors such as the euro, Australian dollar, and British pound in the foreseeable future.
'Based on our conversations, it seems that consensus has firmly shifted towards the dollar index rising in the foreseeable future,' analysts said in a report titled (Time to Sell).
According to discussions with investors, Morgan Stanley indicated that this bullish sentiment arises from expectations of positive data regarding the U.S. economy and that Trump's tariff policies will continue to drive the dollar higher.
However, analysts at the investment bank stated that they believe most of the 'good news' for the dollar is already reflected in the prices, and investors have largely 'digested' the narrative of the 'U.S. outperformance' that is driving the dollar up.
Analysts believe that investors may also have 'overestimated the speed, breadth, and magnitude' of the shift in U.S. trade policy that the Trump administration will implement starting January 20, 2025.
They said, 'While the announcement of Trump's trade policy may come relatively quickly, the pace of implementation may be slower, and the scope seems narrower than many investors expect.'
According to analysts' recommendations, investors can now short the dollar by buying GBP/USD or AUD/USD, as the British pound and Australian dollar are relatively less affected by trade tensions, and both currencies are currently trading near historical lows.
Morgan Stanley analysts stated, 'We feel that the sentiment among investors towards the dollar is overall very optimistic, indicating there is asymmetric risk of a 'pain trade'.'
These analysts, when making trading recommendations, stated that their target prices for GBP/USD and AUD/USD are 1.32 and 0.675, respectively.
Analysts also pointed out that they believe most of the 'bad news' facing the euro has also been digested.
Article reposted from: Jinshi Data
