Stay long King Dollar

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Macro Afternoon

Morgan Stanley joining the chorus:

EUR/USD has hit our short-term target of 1.14, and we are extending it to 1.12. The USD has been grinding higher for most of the year, but the November 10 US CPI print for the month of October has sparked a more accelerated pace of EUR/USD downside in the past few trading sessions.

The likelihood of stronger US data relative to the Eurozone in 4Q was a key reason behind our expectation for a lower EUR/USD into year end. As Exhibit 1 shows, recent data surprises have been favouring the USD relative to the EUR. Our US economics team has been expecting stronger data following the decline in COVID-19 cases from the highs over the summer, while in Europe cases have been rising sharply as we head into the winter months. Various European nations have announced new restrictions on activity recently (see here), and while the impact on growth may be more marginal relative to previous waves, it nonetheless supports our call for a lower EUR/USD.

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