Tuesday’s EUR/USD rebound proved short-lived. Yesterday, EUR/USD failed to extend gains beyond the 1.1340 area. EMU production data were again weak, dampening the potential for further euro gains. Later, the dollar was supported by (slightly) higher than expected US CPI data and by solid real labour earnings. The dollar was again in the driver’s seat, profiting from higher US yield. USD/JPY closed just north of 111. EUR/USD completely reversed Tuesday’s rebound to finish at 1.1261. Overnight, Asian equities are taking a breather after recent rally. Headlines from the US China trade talks remain constructive. President Trump is rumoured considering delaying a rise in import tariffs on Chinese goods. The yuan (USD/CNY 6.76 area) stabilizes despite broad USD strength. China January foreign trade data were strong, but distorted due to the Lunar New Year. The trade weighted dollar (97.05 area) and USD/JPY (111 area) are holding near recent peaks. In the same context, EUR/USD set a minor correction low in the mid 1.12 area this morning. At 1.1275 the pair still struggles to prevent further losses. The Aussie and the Kiwi dollar maintain recent bid tone.

EMU Q4 GDP is expected at a meagre 0.2% Q/Q today. End 2018 EMU eco weakness is well documented. Still, additional evidence recently often continued to weigh on the euro. In the US, PPI inflation, jobless claims and retail sales will be released. Headline US sales are expected soft (0.1%) but control group sales are expected OK (0.4%).

December data are a bit outdated so we don’t expect a big reaction. That said, there is little evidence that today’s data will change the US/EMU divergence trade that weighed on EUR/USD of late. Headline risk on Spain is a wildcard. A protracted ST EUR/USD downtrend pushed EUR/USD to the lower part of the MT 1.12/1.16 trading range. A temporary rebound on Tuesday proved unsustainable. The dollar profits for ongoing (relative) eco strength. A sustained euro rebound probably needs some of the global (trade) and EMU political event risks to be solved and more comforting EMU data. This condition isn’t met. The day-to-day EUR/USD picture remains fragile. EUR/USD 1.1216 marks the Nov low. EUR/USD 1.1287 is 61% retracement 2016 low/2018 top).

EUR/GBP touched an intraday top in the 0.8790 area around the publication of softer UK price data yesterday. Later, sterling rebounded on rumours that a Brexit delay might still be an option for the government. Today, UK PM May seeks Parliamentary approval to extend negotiations with the EU, but the conservative party stays divided on tactics. Sterling trading will again develop according to the tone of the Brexit headlines. We stay sterling cautious.


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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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