Recently published data from the US has been weak while a few positive sounds are coming from the other side of the Atlantic in Europe. This could lead to investors taking profits off the table in their long positions in the US dollar and possibly a sell-off. At least, that is the opinion of Morgan Stanley analysts, who have decided to take profits in the dollar.

However, the same Morgan Stanley analysts show in their research report that they expect the correction of the dollar to be a very temporary experience. They expect the dollar to rise again and even continue its bullish cycle.

Correction In The Short Term

To protect themselves against a correction in the short term, the analysts took profits on a large part of their long position in the US dollar. They remain bearish on currencies with low inflation, however, which is why they remain positive about the dollar.

The long term bull cycle for the dollar is still intact, in their opinion. Despite a correction in the short term, they feel that the bull cycle is only half way. In their words, growth and differences in monetary policies across the world will play to the advantage of the dollar without changing the fundamentals behind the strength of the dollar.

Morgan Stanley expects the euro to grow weaker against the dollar quarter over quarter as well. In the first quarter they expect a 1.12 ratio, only to see it drop back to 1.08 and 1.06 in Q2 and Q3 and 1.05 in the last quarter of the year. All of Morgan Stanley’s predictions with regards to currencies can be found in the table above.