On Wednesday, the dollar declined further on Tuesday’s soft Yellen comments. EUR/USD came within reach of the 1.1376 resistance, as oil temporarily rebounded in early US dealings. However, a real test/break didn’t occur, as oil fell back lower. The US ADP labour report was slightly stronger than expected, but hardly supported the dollar. EUR/USD closed the session at 1.1338 (from 1.1291 on Tuesday). USD/JPY finished at 112.43 (from 112.70).
So, USD/JPY didn’t profit from a constructive equity sentiment.

This morning, Asian equities show a mixed picture. Japanese and Chinese indices trade in positive territory. Oil drops a bit further. Global commodities are trading with a negative bias, which If continued, it might be a negative for risk sentiment. AUD/USD holds in the 0.7660 area, within reach of the recent highs. USD/JPY continues to struggle and trades in the 112.25 area, close to the post-Yellen lows. EUR/USD hovers sideways in the lower half of the 1.13 big figure.

Today, the eco calendar is modestly interesting. EMU HICP inflation is forecast to pick up in March from -0.2% Y/Y to -0.1% Y/Y. We see risks for an upward surprise, especially after yesterday’s higher German and Belgian inflation data. The US initial jobless claims are expected unchanged at 265 000. Also here we see risks for a better (lower) outcome. Finally, also the Chicago PMI is expected to show a rebound from 47.6 to 50.8. Almost all regional business confidence indicators were sharply stronger than expected and a similar rebound in the Chicago PMI is possible. The data context (price data in Europe and activity data in the US) and the risks (upside risks for both) are quite similar to yesterday. Usually, this context is potentially positive for the dollar. However, in the wake of Yellen’s soft comments, it wasn’t true yesterday. A slowdown in the equity rally also won’t help the dollar on an intraday basis. In a day-to-day perspective, we expect the dollar to stay on the defensive with markets looking forward to tomorrow’s US payrolls. The 1.1376 resistance remains the first important level on the charts. A sustained break is unlikely before the payrolls.

After the ECB meeting and the dovish mid-March FOMC meeting, the dollar was sold. EUR/USD broke above the 1.1200/1.0810 range. However, the USD losses remained moderate as several Fed speakers kept the door open for a rate hike, even at the April meeting. The resistance at 1.1376 initially wasn’t challenged, but came with reach yesterday, after soft comments from Yellen. The risk of an test of the upper boundary of the range is growing. 1.1495 remains the key line in the sand medium term. The soft Fed approach pushed USD/JPY temporary below the 110.99/114.87 range. The move was countered by warnings from the BOJ. Last week’s rebound is constructive and leaves the downside of USD/JPY better protected, unless risk sentiment turns outright negative again. The 114.87 range top is the first upside target.


Sterling sentiment remains fragile

Yesterday, sterling was initially resilient despite lingering uncertainty on Brexit. Dollar weakness prevailed early in Europe. Cable touched the 1.4450 area. EUR/GBP filled bids in the 0.7835 area, close to Tuesday’s correction low. However sterling sentiment dwindled later in the session. Polls on the EU referendum suggest a potential neck and neck race, with the ‘leave camp’ gaining slightly ground. Sterling reversed earlier gains. EUR/GBP even closed the session higher at 0.7886 (from 07850). Cable finished the session little changed at 1.4378.

This morning, the GFK consumer confidence was reported unchanged at 0 (-1 was expected), but sterling cannot gain on it. Later today, the UK money supply and lending data, the final release of the UK Q4 GDP and the Q4 current account data will be published. The Q4 data are old news for markets unless there is a really big surprise. The lending data are expected softer. BoE governor Carney speaks in Tokyo. We think sterling sentiment will remain fragile.

Last week, Brexit fears set sterling again under pressure. Cable declined off the 1.45 area, but a first important support at 1.4053 was left intact. EUR/GBP moved temporary above the key 0.7929 resistance, but a sustained break didn’t occur. If sustainably broken, it would additionally damage the sterling picture and open the way to the 0.8000/0.8066 area. We stay cautious on sterling long positions.

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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