EUR/USD rebound accelerates north of 1.11

KBC Market Research Desk KBC Bank

After a hesitant start, EUR/USD yesterday resumed the uptrend from earlier this week. The move was both due to USD softness but at the same time also euro strength. A positive risk sentiment weighed on the dollar, but the EC recovery package also supported European assets and the euro. Technical pictures on several EU equity indices improved and intra-EMU spreads narrowed further. Eco data again had limited impact. EUR/USD ‘easily' cleared 1.1030/35 intraday resistance and closed at 1.1077. A late session US equity correction hardly helped the dollar. The TW dollar (DXY) closed at 98.38 (below the 98.65 support). USD/JPY closed marginally lower at 107.65.

This morning, Asian equities are trading mixed. Markets await a press conference of US president Trump with the US reaction to the new China security law on Hong Kong. Still equity losses, if any, are modest. The yuan (USD/CNY 7.1650) even regains a few ticks off recent lows. The dollar remains in the defensive. USD/JPY fell off a cliff, trading in the 107.15 area. EUR/USD also stays well bid and is testing the 1.11 level.

Today, the eco calendar in Europe and the US is well filled but markets probably will consider April data as outdated. We keep an eye at the EMU CPI (ahead of next week's ECB meeting) and the Chicago PMI. However, president Trump's press conference on China probably is the dominant factor for global risk sentiment. In this respect, we look out whether the USD reaction function is changing. There are tentative signs of building USD weakness. Of course, it is easier for this trend to gain momentum in a risk-on context, but we have the impression that the dollar is also profiting less from a (mild) risk-off. The short-term picture of EUR/USD improved after the break above 1.1018. A test of the end March top (1.1163) might be on the cards. Also watch for a test of downside support in the TW dollar (DXY 98.27) and in USD/JPY.

Sterling gained against a softer dollar but EUR/GBP traded stable in the upper half of the 0.90 big figure. There are few UK eco data today. EUR/GBP feels some spill-over upside pressure from the rise in EUR/USD and is testing the 0.90 barrier. We expect EUR/GBP to remain well bid. The prospect of a difficult next round of EU-UK Brexit negotiations probably won't help sterling.

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KBC Market Research Desk

KBC Bank

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