EUR/USD stabilizes, USD/JPY rebounds after BOJ

KBC Market Research Desk KBC Bank

EUR/USD touched a minor correction low yesterday. European equities traded with a negative bias. ZEW German investor confidence (current situation) declined more than expected, but a bottoming in the expectations component provided a glimmer of hope. US yields also declined substantially, preventing a real USD rally. Later in US dealings, US equities also suffered substantial losses on rumours that US-Sino trade talks didn't go that easy. The rumours were later denied by Larry Kudlow. EUR/USD closed a risk-off session little changed at 1.1360 (from 1.1365). USD/JPY finished at 109.37 (from 109.67). Asian equities show modest losses this morning, but remains limited given yesterday's US sell-off. Markets apparently are drawing some comfort from the prospect of a stimulating policy from the Chinese government/PBOC. The BOJ left its policy unchanged, as expected, but cut its inflation forecast. USD/JPY rebounded to the 109.80 area. EUR/USD is holding a very narrow range near 1.1365.

Today's eco calendar is again thin in the US and in EMU. Risk sentiment will again be the main driver for global trading. The political developments with respect to the US government shutdown and headlines on the fate of the China-US trade talks might affect global sentiment. The corporate earnings season is in full swing as well. US yields show tentative sings of bottoming after yesterday's decline and US equity futures show modest gains. This might be a positive environment for USD/JPY especially as the BOJ cut its inflation outlook. The drivers for EUR/USD trading are less straight-foreward. EUR/USD settled again in the established 1.12/1.15 range after an upside test was rejected. We turned neutral on EUR/USD, looking forward to this week's EMU sentiment indicators and the ECB policy meeting. Last week, the dollar outperformed, but we look out whether the EUR/USD decline might slow as technical support is lining up from 1.1309 to 1.1270 area.
Sterling resumed its rebound of late, mainly driven by markets seeing a growing chance that Brexit will be delayed. It looks that at least a part of the Labour Party might consider to support this scenario. Sterling was additionally supported by solid UK labour market data. Today, the CBI order data will be published, but the focus remains on Brexit. A delay won't solve the Brexit chaos, but a least for now it supports a sterling constructive momentum. 0.8665 is next intermediate support.

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KBC Market Research Desk

KBC Bank

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