Dollar shows no clear, consistent trading pattern

KBC Market Research Desk KBC Bank

The dollar had a rollercoaster ride yesterday. EUR/USD initially jumped higher to the 1.1280+ area. A better global sentiment after Friday’s equity correction eased USD demand. EMU data were mixed with EC confidence improving less than expected but German inflation printing higher (0.8% Y/Y). The USD captured a better bid in US trading even as sentiment improved further and as US (ST) yields declined. Very strong pending home sales added to the intraday USD rebound. However, technical (end quarter) positioning was probably also at play. EUR/USD closed modestly higher at 1.1242. USD/JPY also succeeded a nice intraday gain to close at 107.58

This morning, Asian indices rising up to 2% even as global corona infections continue to rise. Regional data are mixed. Chinese PMI’s printed better good, confirming a gradual recovery, but data in South Korean and Japan disappointed. The USD stays strong despite the risk-on. EUR/USD hovers in the 1.1250/25 area. USD/JPY gains (107.75 area).

Today, the EMU June preliminary inflation is expected at 0.2% Y/Y (core 0.8%), maybe with a slight upward risk. In the US the Chicago PMI and consumer confidence will be published. Fed Chair Powell and Treasury Secretary Mnuchin will appear before a House Financial Panel. US data might come out constructive even as virus infections in the US continue to rise. Fed’s Powell probably will repeat is commitment to support the economy as necessary. Decent US data might provide a rather neutral setup for the dollar but the tentative deterioration of sentiment is USD positive in theory. Last week, EUR/USD corrected modestly lower, but the 1.1160 support area was left intact. We expect this support to hold and look for the EUR/USD cross rate to start some bottoming out process. EUR/USD 1.1349 remains first topside resistance.

Yesterday, sterling continued fighting an uphill battle. EUR/GBP tested the 0.9175 area. The UK government committing to more fiscal spending didn’t help sterling, probably as UK yields declined further. Today, PM Johnson will propose its ‘ New deal’ for a rebuild of the UK economy post corona. Most of the government intentions were already aired of late. The combination of a high funding need and extremely low UK yields weighs on sterling. Even so, after recent setback, the pace of the GBP decline might gradually slow, with 0.9184 resistance nearby.

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KBC Market Research Desk

KBC Bank

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