KBC Market Research Desk
KBC Bank
The euro initially tried to make some further headway yesterday on the hope of a Brexit deal. However, soon it became clear that it won't be easy for PM Johnson to find a majority in Parliament. The EUR/USD rebound stalled. US retail sales disappointed. The US-German interest rate differential narrowed. The dollar initially lost only modest ground, but further technical buying later finally propelled EUR/USD higher in the 1.10 big figure (close 1.1072 from 1.1033). A soft Fed Beige Book was slightly USD negative too. Brexit and/or soft US retail sales were unable to inspire a clear USD/JPY move. The pair closed at 108.76.
Overnight, Asian equities are trading mixed. Recent risk rally is taking a breather. The picture on Brexit and on the trade talks remains muddy and soft US data are a source of caution, too. The trade weighted dollar struggles not to fall below 98. USD/JPY stabilizes (108.75). EUR/USD maintains yesterday's gain (1.1075). The Aussie dollar rebounds as decent labour data ease calls for more RBA action anytime soon.
Today, the USD reaction to US eco data (Philly Fed, housing data, production) might again be a bit asymmetrical with the dollar being more sensitive to a negative than a positive surprise as markets ponder the chance for an October Fed rate cut. Several Fed members will again give their view. Evidently, Brexit remains a wildcard. A deal looks possible, but markets probably need assurance that PM Johnson will find a majority before the euro/sterling relief rally can continue.
Last week, EUR/USD regained 1.10, but there were no follow-through gains. Yesterday, soft US retail sales and lingering hope on a Brexit deal allowed further EUR/USD gains. A Brexit agreement would remove a high-profile source of E(M)U uncertainty. Maybe, the dollar might also lose some further momentum ahead of the Fed October 30 meeting. The pair regaining the 1.1110 area would improve the technical picture.
Sterling trading faced conflicting signals on Wednesday. Apparently there's quite a strong will between UK and EU negotiators to strike a deal, but it still looks difficult for PM Johnson to find a majority at home. Yesterday, hope on a deal prevailed, pushing EUR/GBP to the 0.86 area. Today, markets might give more weight on headlines regarding the approval of the deal in the UK. In this context, a halt in the sterling rally, or even a limited sterling correction/decline is possible.
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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