KBC Market Research Desk
KBC Bank
The USD rebound continued yesterday. It was supported by a gradual further rise in US yields with the 10-y yield nearing the 3% barrier. The EMU April PMI's were slightly above consensus. However, they were not really able to remove the feeling that the EMU growth momentum might be over its peak. Markets apparently assume that the assessment at Thursday's ECB meeting might remain rather soft. EUR/USD drifted below intermediate support at 1.2215 (close at 1.2209). USD/JPY also succeeded a nice break higher and closed the session at 108.71.
Overnight, Asian equities mostly show good gains with Taiwan and Korea underperforming. China outperforms as markets expect the Chinese authorities to keep a rather easy policy in place. The dollar maintains yesterday's gains, but for now there is no follow-through. EUR/USD is holding in the low 1.22 area. USD/JPY hovers in the 108.75 area. Australian CPI inflation was close to expectations. Headline inflation was unchanged at 1.9% Y/Y (2.0% expected). AUD/USD slipped temporary to the 0.7580 area, but soon returned to the 0.76 area.
Today, in Europe several national confidence indices (including the IFO) will be published. IFO confidence is expected to rebound from 103.2 to 104.7. In the US, housing data, the Richmond manufacturing index and consumer confidence will be published. The latter is probably most important for markets. The headline confidence is expected to ease slightly from a multi-year peak. Over the previous days, the dollar finally profited from higher US yields with the 2-yr USD /German spread widening above 300 bp. Markets keep a close eye whether US 10-y yield might rise above 3%. The test is ongoing, but maybe there won't be trigger for a break anytime soon. If so, this might slow the USD rise with markets awaiting Thursday's ECB meeting. A soft ECB assessment might be needed to push EUR/USD below the 1.2155 support.
Yesterday, EUR/GBP basically held a consolidation pattern in the mid 0.87 area as the post-Carney correction slowed. There was also again plenty of noise on Brexit as the poltical debate inside the UK is heating up. Today, CBI business optimism and trends orders will be published. We expect these data to be only of intraday significance. The sterling decline slowed with EUR/GBP holding below the 0.88 resistance. Some consolidation might be on the cards. Friday's UK Q1 GDP data are a potential next reference. Brexit noise remains a wildcard. Currencies R21,2598-1dR11,2555EUR/USD1,2209-0,0079S11,2165S21,2055R20,9307-1dR10,9033EUR/GBP0,8758-0,0018S10,8627S20,8541
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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