KBC Market Research Desk
KBC Bank
This week’s euro rebound slowed yesterday. IFO downgraded its growth outlook for Germany (0.6% for 2019). US eco data were mixed and didn’t provide directional guidance even as markets assume the Fed to stay soft next week. The risk of a disorderly Brexit was seen declining due to recent votes in the UK Parliament. Yesterday’s vote to delay Brexit added to that picture, but it was expected and didn’t provide any further support for the euro or sterling anymore. A pause in the risk rally also blocked further euro gains. EUR/USD closed at 1.1304 (from 1.1327). USD/JPY followed a broader USD rebound (close at 111.70).
Overnight, sentiment on Asian markets turned again positive. Chinese officials including Premier Li confirmed selective (fiscal) stimulus to support growth and job creation. The BOJ as expected left its policy unchanged but downgraded its assessment on the economy due to a less favourable international context. The BOJ decision is only of second tier importance for (FX) markets in Asia. USD/JPY hovers in the 111.70 area. The risk-on trade helps putting a floor for EUR/USD (1.1315 area).
Today, the EMU calendar contains the final CPI and Italian industrial production. In the US, the Empire survey, production and Michigan consumer confidence will be released. US data are expected to rebound after soft/poor numbers the previous month. Still, it is unlikely they will change markets’ assessment on the Fed’s cautious stance next week. (Moderately) positive US data might even support the ST risk rebound which shouldn’t be too bad for EUR/USD and USD/JPY. Brexit might move a bit to the background as a driver for (FX) trading. This week, EUR/USD profited from the risk rebound, at least partially supported by soft expectations on next week’s Fed meeting. After a pause yesterday, it looks the risk rebound might continue. Whatever, we don’t expect a big dollar comeback ahead of next week’s Fed meeting, Post-ECB euro negativism eased and the technical picture for EUR/USD become more stable compared to this time last week. The 1.12 range bottom survived. Any further sustained rebound needs better EMU data. As long as the EMU eco picture remains foggy, more EUR/USD consolidation might be in the cards (1.12/1.14 area).
Yesterday, the sterling rebound did run into resistance. A non-deal scenario has become for less likely after this week’s votes in parliament. Still, visibility on the outcome of the political process remains limited. This is a fortiori the case for the fallout on the economy. We don’t front-run on possible further Brexit-related GBP-gains from current levels. The 0.85 area might become a ST floor for EUR/GBP.
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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