KBC Market Research Desk
KBC Bank
EUR/USD rebounded further off Friday's correction low yesterday as mixed US data last week tempered the USD positive bias. There were no important data and US markets were closed (Presidents' Day). Later in the session, soft ECB comments also capped the upside of the euro. EUR/USD settled in the lower part of the 1.13 big figure for most of the day to close at 1.1311. USD/JPY gained a few ticks as risk sentiment remained constructive and finished the day at 110.62.
Asian equities are trading mixed. Markets are looking for concrete results from the China-US trade talks. At the same time, investors are keen to know the content of the US security report on auto tariffs and what conclusion president Trump will draw. EUR/USD is losing a few ticks, returning to the 1.13 area. BOJ's Kuroda indicated that the BOJ could ease policy further if needed. It can also be used if yen strength would affect Japan's inflation or the economy. USD/JPY reversed an earlier decline and trades again in the 110.65 area. The Aussie dollar (AUD/USD 0.7115 area) eased as the RBA Minutes showed the bank is closely watching the impact of declining house prices on the economy.
US markets reopen today, but the US eco calendar is thin. In Europe, ZEW investor sentiment is expected to ease from 27.6 to 21.0. Other EMU sentiment indicators including the PMI's on Thursday and the IFO on Friday are more important to assess the health of the economy. Still, markets are keen to see whether recent EMU downturn slows or accelerates. Signs of improvement might be modestly euro supportive.
At the end of last week, poor US retail sales and production data capped the USD rebound. We started the week with a cautious/rather balanced EUR/USD bias. An improvement in the global trade picture and better EMU data are needed to improve sentiment on EUR/USD. There are hopeful signs on trade, but the jury is still out. EUR/USD 1.1216 marks the Nov low. EUR/USD 1.1287 is 61% retracement (2016 low/2018 top). The EUR/USD downside looks a bit more solid versus last week.
EUR/GBP hovered in a tight range in the mid 0.87 area yesterday. There was plenty of analysis on 7 Labour MP's leaving the party, but the direct consequences for Brexit were unclear. Today, UK labour market data are expected solid. Additional wage rises and solid employment growth would reinforce the BOE's case to raise the policy rate in case a disorderly Brexit is avoided. However, any positive reaction of sterling will be guarded as Brexit uncertainty still reigns.
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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