KBC Market Research Desk
KBC Bank
On Monday, there were no data or no other obvious story to guide EUR/USD or USD/JPY trading. The dollar gradually found a better bid and EUR/USD drifted south in the 1.07 big figure. Euro weakness was again said to be linked to uncertainty on Greece. However, there was little hard news on Greece. Greek spreads indeed widened, but there were no negative spill-over effects on Italy and Spain. So, calm peripheral bond markets and decent European equities suggest that Greece was no big issue for global trading. Sentiment on risk improved further in US trading and this was a slight help for the dollar.
USD/JPY closed the session at 119.18 (from 118.90). EUR/USD closed the session at 1.0738 from 1.0806 on Friday . Even so, both cross rates continued to trade in well-known territory.
USD maintains yesterday’s gains
Asian markets found their composure after yesterday’s disappointing reaction to the PBOC easing. Most Asian equities show decent gains. USD/JPY is drifting higher, but at 119.45/50 the pair holds a tight range. The dollar maintains yesterday’s gains against the euro. EUR/USD is changing hands in the 1.0720 area at the moment of writing.
Today’s tactics: dollar still better bid
There are again few eco data on the agenda. The ZEW German investor confidence is the exception to the rule. An improvement from 54.8 to 55.3 is expected. A positive surprise is likely, but we don’t expect a lasting impact on EUR/USD. The EMU PMI’s and the German IFO confidence, expected later this week, have more market moving potential. So, currency trading will probably still be driven by the same themes that reigned trading last week: the expectations on the timing of the Fed normalization process, the impact of the ECB bond buying on European bonds yields, Greece and global equity sentiment . Yesterday, we assumed that none of these factors is currently strong enough to drive EUR/USD out of the current sideways consolidation pattern. Yesterday, Asian markets were not really impressed by the PBOC easing, but global investors see the glass again half full as sentiment on risk improves. This could be a slightly positive for the dollar in a day-to-day perspective. Even so, we expect the ST term ranges to hold.
The LT picture remains bullish for the USD, but the soft patch in the US is taking longer and some Fed governors see the economy having difficulties to get escape velocity. Therefore, they will wait for longer before tightening policy. This is a dollar negative. Of course, on the side of the euro, QE will keep rates under downward pressure. At the same time, EMU eco data are improving. So, this brings the EUR/USD short term more in balance. Some dollar bulls may still have to reposition and therefore EUR/USD may revisit the 1.1098 area. We see the 1.0462-to 1.1098 range as appropriate short term.
EUR/GBP locked near 0.72 pivot
On Monday, there was also no big story on sterling trading. Rightmove house prices published before the open of the markets showed a decent increase, but the report failed to inspire sterling trading. Cable and EUR/GBP basically followed the moves in the euro and dollar. Cable and EUR/USD both ceded ground against a broader stronger dollar. Cable slightly outperformed EUR/USD, leaving EUR/GBP with a slight intraday loss. EUR/GBP closed the session at 0.7203 area. Cable drifted back to the 1.49 area on USD strength
Calendar empty. Elections remain a wild card
The UK calendar is again empty today. So, sterling investors probably will be obliged to look forward to the Minutes of the BOE meeting (tomorrow) and UK retail sales on Thursday. Election polls remain a wildcard for trading too. Even so, we expected more order-driven, technical trade in cable and EUR/USD today.
Of late EUR/GBP was captured in a sideways consolidation range in the 0.7150/0.7400 area. The negative impact of the election uncertainty on sterling eased of late. EUR/GBP shifted into a wait-and-see modus. For now, we see no trigger to break this stalemate. The uncertainty on the elections will probably prevent a sustained rebound of sterling, even in case of decent UK eco data. We see strong support in the mid 0.71/0.7150 area short-term.
This non-exhaustive information is based on short-term forecasts for expected developments on the financial markets. KBC Bank cannot guarantee that these forecasts will materialize and cannot be held liable in any way for direct or consequential loss arising from any use of this document or its content. The document is not intended as personalized investment advice and does not constitute a recommendation to buy, sell or hold investments described herein. Although information has been obtained from and is based upon sources KBC believes to be reliable, KBC does not guarantee the accuracy of this information, which may be incomplete or condensed. All opinions and estimates constitute a KBC judgment as of the data of the report and are subject to change without notice.
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