KBC Market Research Desk
KBC Bank
The USD jumped beyond important resistance levels yesterday (DXY 97.75 area). There were no US data and US yields were downwardly oriented. Even so, the dollar enjoyed a ‘by default' bid as other major currencies suffered from an ongoing economic underperformance. In this respect, German IFO confidence disappointed again, suggesting ongoing sluggish growth in Europe's major economy. EUR/USD initially hovered in the 1.12 area but fell below the 1.1187/77 support later to close at 1.1155. USD/JPY closed above the 112 mark (112.19). Overall dollar strength also weighed on most emerging markets currencies.
Asian equities show a mixed picture this morning with China and Korea underperforming. The Korean won suffers a substantial loss as Korea Q1 growth unexpectedly contracted (0.3% Q/Q). The BOJ left policy unchanged and committed to keep rates at cupushed EUR/USD yesterday below the
1.12/1.1177 MT range bottom.rrent low levels at least through the spring of 2020. Still, the yen reversed most of yesterday's loss against the dollar as investors adapt positions ahead of the golden week holidays. USD/JPY returned to the 112 area. EUR/USD consolidates after yesterday's break lower (1.1155 area).
Today, there are few data in EMU. US durables orders are expected to rebound after a mediocre February performance. The series is volatile but the report (ex transportation) might confirm the outperformance of the US economy. US jobless claims are expected to stay low (200k). Ongoing poor EMU data (PMI's) last week pushed EUR/USD back to the low 1.12 area. At the same time, the dollar is supported by relative resilience of the US economy. The continuation of this story pushed EUR/USD yesterday below the 1.12/1.1177 MT range bottom. The break higher in the trade-weighted dollar (DXY) above the 97.70 area confirms the overall positive USD momentum. We expect any further USD gains to develop in a gradual way. Even so, for now, there is no reason to row against the USD positive tide. Next support comes in at 1.1110/19 (May/June 2017 lows).
EUR/GBP and cable flowed the broader price moves of the dollar and the euro yesterday. EUR/GBP dropped from the 0.8680 area to close at 0.8644. There were plenty of Brexit rumours, but no clear sign of progress. Today, the CBI order data are interesting but probably won't have a lasting impact on sterling trading. The political pressure on UK PM May persists. Headlines on a potential new referendum on Scottish independence are also no help of for sterling. Euro and sterling weakness might keep each other in balance short-term.
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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