KBC Market Research Desk
KBC Bank
Investor preference of the USD simply persisted on Friday going into the weekend. EMU PMI's confirmed the devastating impact of the lockdown on activity. On the other side of the Atlantic, the US payrolls signalled a similar ravage as the US economy lost 700 000 jobs in March. Still, that didn't change investors' USD preference. The trade-weighted dollar trended further north of 100 (close 100.58). USD/JPY closed at 108.55 (from 107.91). EUR/USD declined further to close at 1.0801. However, there was no underperformance of the euro against the yen anymore (EUR/JPY hovered sideways around the 117 pivot).
This morning, sentiment on Asian markets is rather risk-on (mainland China is closed). Headlines from Japan are mixed. Sources are reporting that the government might declare a state of emergency. At the same time, markets are looking forward for a new fiscal stimulus package. The risk rebound and a modest rise in US yields, at least for now, are causing a modest decline of the yen. USD/JPY is testing the 109 area. EUR/USD is regaining a few ticks (1.0825/30 area).
Today, the eco calendar is thin. Sentiment on corona will continue to dominate trading. The rise in US futures suggests some investors are pondering whether there is light at the end of the tunnel. It is too early for conclusions and for investors to give up their USD preference. At best, a more positive mood might pause the bid for the dollar. From the euro side of the story we keep an eye at intra-EMU spreads going into a meeting of the EU finance ministers tomorrow as they have to deliver on an EU-wide answer. Will an EU compromise on the funding convince markets or be a (mildly) euro supportive? For now the jury is still out.
Last week, EUR/USD falling below the 1.09 area deteriorated the technical picture. The pair tested the 1.0775 support. The March correction low comes in at 1.0636. We also keep an eye at the trade-weighted dollar. The US currency might remain well bid, but we see no compelling reason for a break beyond the top near 103.
On Friday, the (remarkable) outperformance of sterling against the euro halted. EUR/GBP rebound to close the day at 0.8794. This morning, UK GFK consumer confidence tumbled most on record to -34 from -9. Press headlines this morning also give a lot of attention to UK PM Johnson being brought to hospital. Sterling had a very strong run against the euro of late. We see no reason for further gains. Some consolidation in the 0.8750/0.90 area might be on the cards.
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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