KBC Market Research Desk
KBC Bank
The dollar remained in the defensive on Friday. Investors contemplated whether the US economy is facing more negative fall-out of the trade war after weaker US data earlier last week. The April US durable goods also failed to convince. There was no high profile news on the US-China trade dispute. Earlier indications that the US is preparing action against countries that it considers deliberately weakening their currency, maybe was an underlying USD negative, too. EUR/USD hovered in the high 1.11 area for most of the day and closed at 1.1203. USD/JPY held its gradually downtrend and finished at 109.30.
Asian equites are trading mixed this morning. The yuan is gaining modest ground (USD/CNY 6.8930) after Chinese officials this weekend warned on ‘shorting against the yuan.’ The comments can also be seen as an indication that the China doesn’t intend to use the currency as a weapon in the trade war. USD/JPY is regaining a few ticks. EUR/USD is again trading above the 1.12 handle as the EU elections didn’t bring that big progress for anti-EU parties.
The calendar is empty today and activity will remain subdued with US and UK markets closed. Investors will continue to look for comments on trade as the President Trump visits Japan. In the EMU, markets will monitor political declarations in after the EU elections. The outcome is no game-changer for the euro, but a negative event risk is avoided.
Last week, EUR/USD tested the 1.1110 support, but a sustained break didn’t occur. A broader USD up-move was capped as investors saw risks that Fed might be forced to cut rates further out in time as trade tensions might hurt US growth. Next week’s early month US data will bring an update in this debate. In the meantime, the EUR/USD downside looks again better protected. Further gains in the 1.1110/1.1324 ST range are possible with intermate resistance at 1.1265.
The test of the 0.8840 EUR/GBP resistance continued on Friday as political uncertainty remains high after UK PM May announced she will step down as leader of the Conservative party on June 7. However, new sustained sterling selling waves didn’t occur. This morning, sterling is gaining a few ticks even as Nigel Farage’s Brexit party is the main winner of the EU election. We don’t expect any sterling rebound to go far. Trading will be thin today as UK markets are closed today.
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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