Yesterday, the broad unwinding of USD long positions continued and accelerated due to multiple drivers. The ample provision of USD liquidity by the Fed both in- and outside the US (swaps) continues doing its job. Global tensions eased (cf. stocks), reducing USD safe haven demand. The trend of declining USD interest rate support continued. The exceptional spike in US jobless claims brought hard evidence of the severe impact of the crisis on the US economy. Claims weren't the main driver behind the USD correction, but didn't help either. The trade-weighted USD (DXY) fell below the 100 mark. EUR/USD regained the 1.10 barrier (close 1.1032). USD/JPY closed around 109.30 despite a risk-on context.

This morning, the repositioning out of the dollar continues even as US equity futures suggest that the risk rally might slow. USD/JPY (mid 108 area) declines further. The USD decline is said to be reinforced by yen repatriation flows toward the end of the Japanese fiscal year. Contrary to last week, the Chinese yuan is an ‘underperformer' with USD/CNY stabilizing in the 7.0750 area. Most other regional FX are also rebounding. EUR/USD (1.1040) maintains yesterday's gain.

Today, (consumer) confidence data in France and Italy will probably nosedive in an unprecedented way, but are probably no factor for the euro. Yesterday, EU leaders didn't agree on the (financial) structure of their crisis response. The likes of Germany and The Netherlands still don't agree on financing on an EU level via coronabonds. This a key political topic for the EU, but as mentioned yesterday, we don't think that the ESM/OMT option, if it were to be the outcome, should be that negative for the euro. Yesterday and on Wednesday, there were already technical signs of an EUR/USD bottoming. The swift break above 1.09 improves the technical picture. EUR/USD might have entered a buy-on-dips pattern even as end-of quarter repositioning still might cause some nervous swings. 1.1237/50 is a next topside reference.

Yesterday, EUR/GBP initially hovered in the 0.92 area, but the risk-on sentiment and decline of the dollar also caused an aggressive unwinding of sterling shorts. EUR/GBP is now nearing the 0.90 support, which worked as short-term technical reference/bottom during peak period of financial stress. Sterling trading will continued to be dominated by global trends, but maybe the EUR/GBP decline might slow from here.

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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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