KBC Market Research Desk
KBC Bank
EUR/USD maintained a cautious upward yesterday. The move had only a loose link with price action in core bond and equity markets. A strong ZEW maybe was slightly euro supportive. Later, the EUR/USD rebound accelerated on headlines that the US considers delaying the December 15 deadline to impose additional tariffs on Chinese goods. The pair closed at 1.1092. EUR/JPY and USD/JPY also succeeded an intraday uptick even as (US) equities struggled. USD/JPY finished at 108.72.
This morning, Asian equities opened mostly negative, but gradually improved. A report signalled an overshoot in the Japan budget deficit to be covered by more bond sales. The news is mixed, maybe even a tentative positive for the yen. USD/JPY hovers near 108.75. EUR/USD is running into resistance as the 1.11 resistance is again with reach. The kiwi dollar eases after the recent rebound. The government cut the 2019/20 growth forecast to 2.3% but announced further fiscal stimulus.
Today's, US CPI is expected at 2.0% (from 1.8%). The core is expected unchanged at 2.3%. The dollar probably needs a big surprise as markets mainly watch the PCE deflators. Later, the Fed will likely confirm a pause after cutting rates three times. Powell will probably repeat that the economy is in a good place. Any focus on the symmetric inflation target might be a tentative USD negative. Even so, the FOMC communication probably won't be key for the dollar. The focus is on other event risks (ECB, tariffs, UK election). The outcome of the UK election and the trade talks remains binary in nature. We still see as slightly bigger chance for a euro supportive rather than a USD supportive outcome.
EUR/USD eased off the 1.11 after last week's US payrolls EUR/USD soon found its composure. The EUR/USD 1.0989/81 area looks quite solid support. The jury is still out, but we slightly prefer to sell the USD on upticks, against the euro and the yen.
Sterling held strong yesterday with EUR/GBP again drifting close to the 0.84 barrier. Overnight, a new You Gov poll caused some renewed uncertainty as it predicted a smaller Conservative majority (28 vs 68 two weeks ago). EUR/GBP returned back higher to the mid 0.84 area. Healdlines on the election will continu to guide intraday sterling trading, but we don't expect a big sterling correction before the publication of the election result.
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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