(Reuters) - The dollar is at its most oversold level in over 40 years, investment bank Morgan Stanley said on Friday, adding it had now shifted from its dollar-bearish stance and turned “tactically neutral” on the U.S. currency.

The bank has exited its short position on the dollar index =USD .DXY which measures its value against a basket of currencies, while also closing long positions on the euro and Australian dollar versus the greenback.

It added moreover that risks appeared to be building for the equity rally, following improving company earnings and investment inflows in the past fortnight.

A sentiment gauge called the Combined Market Timing Indicator was now giving a ‘sell’ signal for the first time since January 2018, Morgan Stanley said.

“With global markets appearing tactically stretched a sell signal on our MTI (market timing indicator) would certainly add to the notion that upside on markets may be capped near term,” it told clients in a note.