The dollar showed no clear trend yesterday. EUR/USD (close 1.1338) and the trade-weighted USD (DXY close at 96.45) finished little changed. USD/JPY (close 110.85) gained modest ground, mainly on yen weakness after soft comments from BOJ's Kuroda. The Fed Minutes showed Powell and Co will be patient as they try to find out whether further rate hikes are needed. The balance sheet roll-off will likely end this year. The USD lost ground before the release of the minutes, but rebounded afterward. Some investors maybe hoped for hints on possible rate cuts, but this sign didn't come, preventing further USD losses.
Overnight, Asian equities are (modestly) supported by headlines that the US and China are making good progress on a trade deal (MOU's, a list of products that China will buy to reduce the trade deficit ....). The valuation of the yuan is rumoured to be part of a deal. The yuan strengthens further (USD/CNY 6.70 area). The yen reversed earlier strength as the Japan manufacturing PMI fell into contraction territory. EUR/USD is little changed. The Aussie dollar initially gained on strong labour market data. However, the Aussie dollar nosedived later on an analyst call for rate cuts. Finally, headlines on a Chinese port blocking Austrian coal imports pushed AUD/USD back to the 0.71 area. The calendar is well filled today. EMU February PMI's are expected to stabilize near recent low levels. Are there finally signs that the worst may be over? US data include the Philly Fed business outlook, durable goods orders and existing home sales. USD traders might be alert for more signs of US eco softness after last week's poor sales & production data. Headlines on the Sino-US trade talks are a tentative euro positive, but it is counterbalanced by uncertainty on US import tariffs on autos.
EUR/USD rebounded off last week lows after some poor US data but sentiment on the euro remains fragile. Of late, we assumed progress on trade issues and better EMU data are needed for a more protracted EUR/USD comeback. There are hopeful signs on trade, but the jury is still out. EUR/USD 1.1216 marks the Nov low. EUR/USD 1.1287 is 61% retracement (2016 low/2018 top).

Sterling maintained most of Tuesday's gains yesterday. EUR/GBP hovered near the 0.87 pivot. The pair is still trading in that area even as Fitch put the UK AA credit rating on negative watch due to the potential negative impact of Brexit. Some headlines suggest progress on the backstop has been made after yesterday's meeting between PM May and EU's Juncker was labelled ‘constructive'. Of late, markets tended to be positioned for a scenario that a no-deal Brexit could be avoided. EUR/GBP 0.8621/17 is key MT support.


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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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