Yesterday's EUR/USD moves followed the swings in sentiment around the ECB decision. EUR/USD dropped to test the low near 1.0926 after the policy announcement. The combination of a deposit rate cut and, even more, the restart of QE, initially highlighted the ECB commitment to an ultra-easy approach. However, during the press conference, Draghi stressed that fiscal stimulus now has a much bigger role to play. As did Lagarde earlier this month, he acknowledged the side-effects (and thus the limits) of policy. European yields more than reversed the initial decline and so did EUR/USD. The pair closed at 1.1065 (from 1.1010). USD/JPY extended its ‘reflation' rally to close north of 108.

Overnight, the risk rally continued as headlines continue to suggest that the US and China are aiming for some kind of partial trade agreement.
The yuan (USD/CNY 7.0785) maintains this week's gains. USD/JPY is holding north of 108. EUR/USD stabilizes in the 1.1070 area.

Markets will still ponder the meaning of yesterday's ECB policy decision. Headlines on the trade war suggest an ongoing constructive risk sentiment. Regarding the data, the focus turns to the US retail sales and the Michigan consumer confidence. Retails sales growth is expected slow after five strong months. A slight setback/negative surprise wouldn't change the broader picture but might be cause some USD caution ahead of next week's Fed policy decision. Yesterday's market reaction (both in yields and the euro) suggest that markets assume the ECB is running out of ammunition. The focus on fiscal policy in theory is a euro positive, too. Investors also might turn a bit more cautions on the dollar ahead of next week Fed meeting. From a technical point of view, yesterday's intraday price action solidifies the 1.0925 support area. So, we take a cautious positive bias on EUR/USD.
A return north of 1.11 would call off the ST negative alert for EUR/USD.

Yesterday, there was little high profile ‘new news' on Brexit. Trading in EUR/GBP mostly followed the ECB-driven price pattern of EUR/USD. Sterling lost some ground against a broadly stronger euro (EUR/GBP 0.8971 close) but closed little changed against the dollar. Today, there are no important data in the UK. With the news flow on Brexit gradually becoming thinner, we expect more technical trading in sterling, following the global trends the dollar and/or the euro.

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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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