KBC Market Research Desk
KBC Bank
The recent euro decline/USD rally fell prey to profit taking yesterday. EUR/USDeuro decline/USD rally fell prey to profit taking rebounded as global sentiment improved on a tentative US budget deal and investor hopes that the US-China trade talks are heading in the right direction. ECB speakers including Weidmann, Lane, Nowotny and Knot didn't sound overly dovish. EUR/USD briefly filled bids below the 1.1270 support, but the test was rejected and EUR/USD staged a protracted intraday rebound to close at 1.1326. USD/JPY confirmed its 110+ break, but given the rise in US yields and the positive sentiment, gains were modest (close at 110.48).
Overnight, Asian equities also rally on the positive headlines on the US-China trade talks. The yuan strengthens (USD/CNY 6.7550 area). USD/JPY (111.65) continues drifting higher. EUR/USD (1.1335 area) is gaining a few ticks. The kiwi dollar rebounded sharply as the RBNZ failed to meet dovish market expectations (rates are expected stable through 2019 & 2020, a tentative rise is pencilled from 2021). The kiwi dollar gained more than a full big figure (NZD/USD 0.6845 area). The Aussie dollar (AUD/USD 0.7130 area) also regained modest ground on decent confidence data and constructive RBA talk.
US CPI inflation is expected to ease to 1.5% (headline) and 2.1% (core) today. If anything, the report might justify the Fed's wait-and-see stance. This might be neutral to tentatively soft for the USD. Headlines on the Spanish budget are a wildcard. Yesterday, the euro profited from a better risk sentiment. However, EMU political event risk is still in play and the fragile eco picture questions the room for the ECB policy normalisation. EUR/USD tested the 1.1270 area, but the test is rejected. However a sustained euro rebound probably needs some of the global (trade) and EMU political event risks to be solved and more comforting EMU eco data. This condition isn't met yet. We look out for more convincing signs of a bottoming process. EUR/USD 1.1216 (Nov low) low remains next high profile support.
EUR/GBP gained a few more ticks yesterday. The move was mainly caused by the overall EUR/USD rebound. UK PM May as expected tried to convince Parliament to give her more time to reach a better deal/agreement on the Irish backstop arrangement. Today UK inflation data will be published a modest easing is expected. However, markets will mainly look forward to the developing Brexit story, starting with tomorrow's vote in the UK Parliament. As we don't see signs of a break-through yet, more technical driven EUR/GBP trade might be expected.
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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