KBC Market Research Desk
KBC Bank
Yesterday, the odds in FX trading tilted in favour of the euro, at least temporarily. EUR/USD hovered just below 1.11 as uncertainty on the corona virus triggered a risk-off repositioning in Asia. Later, EUR/USD was propelled by an unexpected sharp rise of ZEW investor confidence. In line with recent price action, the decline in core (US) yields due to the risk-off also weighed on the dollar. USD/JPY dropped below 110 (close at 109.87). EUR/USD spiked to the 1.1115 area, but the gain evaporated soon. The pair even closed the session in the red (1.1082 vs 1.1095). For now, the pair is still captured in a sell-on-upticks pattern.
This morning, Asian markets gradually recoup part of yesterday’s virus-induced sell-off. Regarding the data, South Korea Q4 growth surprised on the upside (1.2% Q/Q), a pointer regional and even global growth might be bottoming. Still, the regional dynamics are mainly driven by the headlines on the corona virus. The yuan opened weak but reversed intraday losses (USD/CNY near 6.9050). The dollar profits from a guarded rebound in US yields. USD/JPY is trading just north of 110. EUR/USD struggles not to fall below the 1.1080 support area.
Today, the eco calendar is thin both in the US and Europe. So, global sentiment/FX trading will mainly be driven by headlines on the (wider) impact of the corona virus. Investors also keep an eye on corporate results as the earnings season is in full swing. Yesterday, EUR/USD profited temporarily from a strong ZEW, but there are few euro-specific drivers. If anything, uncertainty on Italian politics might be euro negative. Global factors also don’t help EUR/USD. A rebound in core yields tends to the support the dollar, both against the yen and the euro. The technical picture remains fragile too. EUR/USD struggles not to fall below the 1.1085/66 support. A break would deteriorate the short-term picture. A rebound above 1.1180 would call off the ST downside alert, but that looks difficult for now.
Over the previous days any upticks in EUR/GBP were met with decent GBP buying interest despite market speculation on a BoE rate cut at the of this month. Yesterday, sterling was further propelled by a solid UK labour market report. EUR/GBP returned below the 0.85 handle. Of late, sterling didn’t suffer much from the debate on a potential rate cut. For now, ST sterling momentum remains constructive. The UK preliminary PMIs (tomorrow) might be key for the BoE and for sterling.
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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