Worries on US/global growth dominated FX trading yesterday, even as there was little concrete news to ‘explain' growing investor uncertainty. Investors also weren't convinced that the truce in the US-China trade dispute will yield a positive outcome. The fattening US yield curve was seen as a harbinger of more difficult economic times ahead. Initially, USD weakness prevailed. Later an acceleration of US equity selling triggered a classic FX risk-off trade, with USD/JPY, EUR/USD and EUR/JPY all trending south. There were no (US) eco data to ‘support' this risk-off trade. EUR/USD closed the session at 1.1343. USD/JPY finished the day at 112.77 (from 113.66). Overnight, sentiment in Asia remains risk-off, but losses are more modest compared to the 3%+ sell-off in the US. The China Caixin PMI's unexpectedly rebounded, but it is far from sure they will be able to remove uncertainty in a sustainable way. Chinese officials held a constructive tone on US-trade relations after last weekend's meeting. Australia Q3 growth unexpectedly eased to 0.3% Q/Q and 2.8% Y/Y (0.6% Q/Q expected). The release, in combination with the risk-off trade, broke recent AUD-constructive momentum, pushing AUD/USD below the 0.73 handle. EUR/USD is holding a cautious negative bias (1.1320 area). USD/JPY regains a few ticks (113.05 area). US markets are closed today to honor President Bush. In EMU, the final PMI's will be published. Global sentiment will remain the main driver. At least today, the flattening US yield curve won't stoke further unrest. Still, the context of at the same time global uncertainty and declining US yields (and a flattening yield curve) is ambiguous for EUR/USD. The jury is still out, but it is not evident to see a sustained EUR/USD rebound in case of a profound global risk-off context. In a daily perspective we change our ST bias to neutral. We still assume the 1.12/1.15 trading range to hold. The day-to-day momentum looks slightly more USD constructive.
Sterling gained temporary ground yesterday on headlines that the UK could unilaterally revoke the exit of the EU. Later in the session, the government lost votes in Parliament forcing the government to publish a legal advice on Brexit. Parliament will also get more initiative in case of May's deal being rejected next week. Chance of the Brexit dealing being approved are low, but at the same time, the Parliament's actions might mitigate chance of a hard brexit. However, for now, political visibility remains too low to expect a positive/orderly outcome. We remain cautious on sterling long exposure.
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.
Recommended Content
Editors’ Picks
EUR/USD stabilizes near 1.0800 as trading action turns subdued
EUR/USD holds steady near 1.0800 on Thursday and remains on track to end the day in negative territory following upbeat macroeconomic data releases from the US. The action in financial markets turn subdued as trading volumes thin out heading into Easter holiday.
GBP/USD extends sideways grind above 1.2600
GBP/USD fluctuates in a narrow channel above 1.2600 on Thursday. The better-than-expected Initial Jobless Claims data from the US and the upward revision to the Q4 GDP growth help the USD stay resilient against its rivals and limits the pair's upside.
Gold pulls away from daily highs, holds above $2,200
Gold retreats from daily highs but holds comfortably above $2,200 in the American session on Thursday. The benchmark 10-year US Treasury bond yield stays near 4.2% after upbeat US data and makes it difficult for XAU/USD to gather further bullish momentum.
XRP price falls to $0.60 support as Ripple ruling doesn’t help Coinbase lawsuit against SEC
XRP programmatic sales ruling by Judge Torres was completely rejected by another US Court that ruled in favor of the SEC in a lawsuit against Coinbase.
Portfolio rebalancing and reflation trades emerge into Q2
Yesterday’s price action pointed at a possible end-of-quarter portfolio rebalancing as the session saw the laggards of the quarter like Apple and Tesla gain, and the stars like Microsoft and Nvidia retreat.