Bonds and equities traded indecisively yesterday. Investors pondered incoming news on corona after China applied a new methodology of reporting. Still, the euro downtrend remained firmly in place. The EMU economy already suffered ‘pre-corona’ and last year’s evidence showed EMU is vulnerable to disruptions in supply chains from China. Technical factors were also in play. EUR/USD, EUR/JPY and EUR/GBP more or less simultaneously dropped below technically relevant levels, reinforcing a stop-loss repositioning. The euro even struggles against some smaller currencies (PLN, NOK, HUF….). EUR/USD closed at 1.0841 (from 1.0874). USD/JPY closed at 109.82, still within reach of the 110 handle.

This morning, Asian equities are mostly trading higher with Japan underperforming. US equity futures try to resume their uptrend after yesterday’s pause. The yuan eases marginally but USD/CNY is holding below the 7.00 reference. USD/JPY stabilizes in the 108.80 area. EUR/USD remains under pressure (1.0835 area).
EMU growth to be published later today (expected at a meagre 0.1% Q/Q) is a bit outdated. Still, any negative surprise or poor details could raise further questions on the health of the economy already before corona and on the ECB’s reaction, with the risk of further negative implications on the euro. In the US, retail sales, industrial production and Michigan consumer confidence will be published. We keep an eye at the retail/consumer data after a loss of momentum in Q4 consumer spending. However, US data probably have to be quite weak to break the USD bid and to change fortunes for EUR/USD.

The EUR/USD technical picture deteriorated substantially after breaking subsequent supports, including the 1.0879 2019 low. 1.0778 is next reference (2017 gap). A sustained rebound above 1.0879/1.0925 would be first tentative sign that pressure might be easing.

Yesterday, UK political turmoil turned out to be supportive for UK yields and for sterling. Fin Min Javid resigned after a dispute with PM Johnson. His successor Rishi Sunak is seen as more open to a less strict budgetary approach. Sterling extended gains after the reshuffle. Euro weakness accelerated the EUR/GBP decline to the 0.83 area. The post-election low (0.8277) is on the radar. There are no UK eco data today. Further euro weakness still might cause a retest of correction low.

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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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