KBC Market Research Desk
KBC Bank
On Thursday, USD/JPY rebounded off the recent low supported by a positive equity market sentiment. Decent US data were also a slightly positive for the dollar. The picture for EUR/USD was less clear. The pair was captured in a sideways range between 1.0990 and 1.1045. The pair was off Wednesdays correction low, but gave no clear directional signal yet. EUR/USD closed the session at 1.1018, virtually unchanged. USD/JPY finished at 113 (from 112.08).
This morning, Asian equities show modest gains with intraday highs early in the session. Oil prices hold near the recent highs ($35p/b). PBOC Governor Zhou repeated that the bank has still tools to ease monetary policy and saw no reason for a yuan devaluation. Nevertheless, Chinese equities underperform. The rebound in oil yesterday keeps the Aussie and the Canadian dollar near the recent highs. USD/JPY drifts slightly lower, as equities return some of the initial gains, trading in the 112.65 area. EUR/USD is well bid trading in the 1.1060 area.
Today, the eco calendar is well filled. German HICP inflation is expected to increase 0.6% M/M , but the annual reading is expected to slow from 0.3% Y/Y to 0.0% Y/Y. A negative reading (Y/Y) is possible. After poor PMI’s and a weak IFO, also European Commission’s economic confidence is expected to have weakened in February. We see downside risks. So, the EMU data might be slightly negative for the euro. In the US, Q4 GDP is expected to be revised further down to an annualized 0.4% Q/Q. Finally, personal income and spending are expected to have picked up in January The PCE deflators will be key. The PCE deflator is expected to pick up from 0.6% Y/Y to 1.1% Y/Y. The core PCE one is forecast to increase from 1.4% Y/Y to 1.5% Y/Y. The risks, if any, are for an upward surprise in the PCE deflator data. So, the US data might be mixed for the dollar. However, an upward surprise in the (core) PCE deflator might have most weight from a market point of view. Markets will also keep an eye the comments from the G20 meeting.
Of late the dollar showed a diffuse price pattern. USD/JPY rebounded this week after retesting the 111 area. At the same time, the decline of EUR/USD also bottomed out.. The euro initially didn’t profit from negative news and rebounded Wednesday and Thursday even as sentiment was risk-on. The picture remains inconclusive and we see no clear driver for now.
From a technical point of view, the correction high stands at 1.1376. Next important resistance kicks in at 1.1495. Recently, the dollar slowly fought back, but this move had no strong momentum. Monday’s decline below 1.1060 was a ST negative for EUR/USD and could have opened the way to the 1.0810/1.0711 support area. However, for now there is no follow-through price action.
USD/JPY dropped below the 115.98 pre-BOJ low. Japanese officials warned on potential action, putting a short-term floor under the pair. Even so, it remains vulnerable. Any rally might soon run into resistance (114.87 recent high). The 115.98 January low is a next resistance.
Sterling decline continues
On Thursday, sterling’s Brexit-sell-off slowed. The global context was a bit more sterling friendly. Oil stabilized and equities rebounded. Midmorning, UK Q4 GDP growth was confirmed at 0.5% Q/Q and 1.9% Y/Y but the details were a bit disappointing. However, the ‘negative’ composition of growth this time didn’t hurt sterling. The UK currency stabilized against the euro and gained some ground against the dollar. Cable rebounded to just below 1.40, but returned some of the early gains as the dollar rallied later in the session. Cable closed the session at 1.3962 (from 1.3927). EUR/GBP finished at 0.7892 (from 0.7909).
Some short-term GBP shorts were apparently inclined to take some ships off the table.
This morning, UK GfK consumer confidence declined more than expected from 4 to 0 (3 was expected). We didn’t see a reaction of sterling. Cable and EUR/GBP were driven by the swings in the dollar and the euro . There are no other important eco data on the calendar in the UK today.
Yesterday, the Brexit decline of sterling slowed. Some consolidation or even a limited technical rebound might be on the cards after the recent decline. However, for now, it is much too early to call a trend reversal. Sterling didn’t succeed any meaningful rebound against the euro or the dollar yet.
The medium term technical picture of sterling against the euro remains negative as EUR/GBP broke above the 0.7493 Oct top. The pair cleared the 0.7898 resistance earlier this week. 0.8066 is the next important resistance.
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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