Morgan Stanley Predicts EUR/USD Could Rise to 1.12 Amid German Fiscal Moves
Morgan Stanley’s FX strategists suggest that the EUR/USD pair has the potential to climb to 1.12, up from its current range of 1.08-1.09. This outlook follows Germany’s recent fiscal policy announcements, which have already triggered a significant rally in the euro.
However, while further gains are possible, surpassing the 1.12 resistance level would require a more substantial shift in monetary and fiscal policies between the U.S. and Europe. Analysts warn that the market might be overestimating the impact of Germany’s fiscal measures on overall eurozone growth.
Key Insights from Morgan Stanley:
🔹 German Fiscal Impact: Germany’s fiscal changes could add approximately 60 basis points to the country’s GDP growth, a noticeable boost but not a game-changer for the broader eurozone.
🔹 Investor Sentiment Shift: The recent rally in EUR/USD is the largest since 2022, driven by optimism surrounding Germany’s policies and a reassessment of the "US exceptionalism" narrative that has dominated since the U.S. elections.
🔹 Dollar Sensitivity: With market sentiment shifting, the U.S. dollar is now more sensitive to negative news, while the euro has greater potential to appreciate on positive developments.
🔹 Technical & Valuation Factors: Despite recent gains, EUR/USD is still considered undervalued relative to equity market trends, suggesting further upside potential.
While the near-term outlook remains bullish, Morgan Stanley advises caution, as the market could be running ahead of fundamental changes.
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