On Friday, global currency markets entered calmer waters as the post-Fed decline of the dollar petered out. The dollar even regained slightly ground against the euro and the yen, but the gains were insignificant from a technical point of view. EUR/USD closed the session at 1.1270 (from 1.1318 on Thursday). USD/JPY finished the week at 111.55 (from 11.39 on Thursday evening).

This morning, Asian equities show a mixed picture. Most indices record modest losses despite a positive close in the US on Friday. Chinese equities outperform as regulators eased the restrictions on margin lending. This is a Chine-specific issue that shouldn’t affect global trading. Oil is trading slightly lower this morning. Commodity currencies are losing some ground with AUD/USD trading at 0.7580. The inverse correlation between the dollar and oil remains in place. The dollar is off the post-Fed lows as oil is drifting south. EUR/USD trades currently in the 1.1265 area. Japanese markets are closed. USD/JPY holds in the mid 111 area.

Today, the eco calendar is again thin. US existing home sales are forecast to have dropped in February following already two consecutive monthly declines, notably by 2.9% M/M to 5.31 million. Existing home sales are close to the post-crisis highs, while inventories are near record low levels, which suggests that there is limited room for sales to increase much further. We see risks for a downward surprise. Fed Lacker (hawk) and Lockhart (centrist) may give us some more insights in the FOMC decision. There are no high profile factors to guide USD trading this morning. Sentiment might be slightly negative at the start of trading in Europe. In the absence of important eco data, USD traders might keep an eye at oil and other commodities. A slide of oil might help the dollar to regain some further ground in the wake of last week’s post-Fed correction.

Before the FOMC decision, we advocated sideways EUR/USD trading within the 1.1200/1.0810 range. The top of this range was already tested after the ECB meeting and was broken following Wednesday’s soft Fed. On Friday, the post-Fed USD decline finally halted. It will take some time for the dollar to digest the U-turn in the Fed interest rate assessment.

Still, we don’t expect a big sustained jump higher in EUR/USD. 1.1376 is the next important resistance. 1.1495 is the key line in the sand medium term. The soft Fed approach also pushed USD/JPY back lower in the 110.99/114.87 sideways range. The pair dropped temporary below this range, but the move was countered by rumours on rate checking from the BOJ. The BOJ will most probably continue to send warning signals in case of a drop below 111. However, for now, USD/JPY fails to rebound off the recent lows. We are in no hurry to go USD/JPY long as we want more confirmation that the BOJ won’t have to accept a lower USD/JPY bottom.


Sterling shows mixed picture after the Fed

With no important data on the agenda, sterling trading was driven by global factors and technical considerations on Friday. The UK currency maintained Thursday’s gains against the dollar even as the dollar was better bid across the board. Cable closed the session at 1.4476 (from 1.4482 on Thursday evening). EUR/GBP continued Thursday’s post-BoE decline. The move was partially inspired by the intraday correction of EUR/USD. However, the Brexit storm from earlier last week has calmed down. EUR/GBP dropped below the 0.78 big and closed the session at 0.7784 (from 0.7815).

Overnight, UK Rightmove House prices remained solid at 1.3% M/M and 7.6% M/M. The rise was due to price increases recorded outside London. Later today, the CBI industrial trends will be published. A decline from -17 to -14 is expected. We look out whether sterling can continue its bottoming out process, even in case of a weaker than expected report. This morning at the start of trading, the sterling momentum is clearly less positive than was the case at the end of last week. The UK currency is under moderate pressure against the dollar and euro.

Of late, sterling bottomed out as Brexit-fears moved (temporary) to the background. For cable, the hypothesis of a bottoming out process remains in place. For EUR/GBP the picture was damaged by the overall post-ECB euro rebound and the pair came close to the 0.7929 resistance. The test was rejected. If this level holds, it could be a first indication that sterling enters calmer waters also against the euro. The medium-term picture of sterling against the euro remains negative as EUR/GBP holds above the 0.75 area. Short-term, EUR/GBP tested a first support at 0.7696 and temporary broke it. Finally, the test failed though. 0.7652 is the first important support level.

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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