Morgan Stanley analyst: Believe the USD has reached its peak at around current levels
- Recent inflows into the US are primarily short term,and thus prone to reversal
- Risk markets predicted thecurrent USD rally... We are closely attuned to the information content of risky asset holdings, which are often indicators of future trends. For example, the USD weakened throughout 2017 as investors were focused on a narrative of synchronized global growth. However, risk (equity and credit markets) outperformance suggested instead that global growth was actually becoming desynchronized. The USD started to rally in February,and hasn't looked back since. The Fed's broad USD indexhas reached its December 2016 highs. By contrast, the G10- focused DXY has only retraced two thirds of its 2017 decline.