EUR/USD: Morgan Stanley remains bearish, but keeps an eye on dollar volatility

Morgan Stanley remains bearish on the EUR/USD on the forex but is keeping an eye on the dollar in the short-term:

"The USD is increasingly volatile, but we are sticking to our bearish view as the ECB should limit the EUR's rise.

The widening of peripheral spreads in the Eurozone will be difficult to contain without a reduction in political volatility or if the ECB does not keep monetary conditions extremely flexible. Since inflation rates remain largely different for euro area members, the ECB may have to set monetary policy for the weakest link, which would have the effect of limiting the rise of the euro. That being said, the USD should become more volatile and should be monitored closely and thus it become a downside risk."