EUR/USD: Morgan Stanley's euro and dollar forecast for this week (10 October 2016)

Like every week, you will find below Morgan Stanley's weekly forecasts for the euro and the dollar for the week 10 October 2016:

EUR: We should monitor banks and inflation, bullish view

"We remain bullish on the euro. We believe that concerns regarding the European banking sector are bullish for the currency, to the extent that it could lead European banks to liquidate their foreign assets and repatriate funds. Moreover, recent comments by the ECB showed some caution regarding low and negative rates, suggesting that there are few tools in the ECB's arsenal. Global and European inflation also edged upwards in September, which, if this is sustained, could reduce rate cut expectations (currently the market anticipates a decline of 0.1% by the end of 2017)."

USD: The dollar should remain within a range, neutral view

"US data improved significantly in the last week and should be sufficient to allow an increase in the Fed rate in December. In this context, we expect the dollar to remain firm against the G10 currencies, but this will largely depend on US data during the next 2 months, which will allow us to progressively refine the probability of a rate hike in December."