KBC Market Research Desk
KBC Bank
There was initially again no clear guide for USD-trading yesterday. EUR/USD held a tight range in the upper half of the 1.23 big figure. The dollar finally captured a better bid later in the session. We didn't see any high profile news. The move coincided with a slight decline in the oil price and with a correction on US equity markets. The dollar maybe played some kind of temporary safe haven role. EUR/USD close the session at 1.2345. USD/JPY finished little changed at 107.37.
Asian equities remain in the defensive overnight. Technology shares take the lead in the decline. China underperforms again. Japanese March inflation data remain soft, but were in line with expectations (0.9% Y/Y for the measure ex Fresh food). The moves in the major USD cross rates are modest. Even so, the USD currency is holding up well given the volatility/uncertainty in several other markets.
There are hardly any important data in EMU or in the US today. We aren't convinced that this will be a guarantee for calm trading. Yesterday's moves in core bonds suggest that investors are adapting positions. The dollar held up well in this process even as the interest rates moved in favour of the euro. We look out whether this pattern persists. A further catching up move with European bonds underperforming Treasuries is not per se a positive for the euro. We also keep an eye at the gyrations in commodities and equities. The jury is still out, but in a short-term perspective, we have the impression that a renewed rise in volatility might benefit the dollar rather than euro.
Sterling (EUR/GBP) initially held near the levels after Wednesday's soft inflation data. March UK retail sales disappointed again. However, poor weather conditions were to blame. The market assumed that soft data wouldn't question a May rate hike anymore. Sterling even rebound with EUR/GBP returning to the 0.87 area. BoE's Carney created doubts after the European close by indicating that the BoE hasn't decided on the timing of a next rate hike yet. Sterling was hammered. EUR/GBP jumped to the 0.8765/70 area. There are no UK eco data today. Yesterday's comments of BoE Carney broke the sterling positive momentum. The extensive test of the 0.8650 range bottom is rejected. Short-term, some further unwinding of sterling longs ahead of the BoE meeting might be on the cards. Brexit noise might also resurface.
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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