KBC Market Research Desk
KBC Bank
On Friday, trading in the major USD cross rates was mainly sentiment driven and technical in nature. There were no US data. EMU data (German labour data and EMU CPI) printed better than expected but had again hardly any impact on EUR/USD. The pair even extensively tested the 1.0989 support, but a sustained break didn’t occur. Later, a risk-off (end of month?) profit-taking also hurt the dollar. EUR/USD returned north of 1.10 (close 1.1018). USD/JPY closed at 109.62. This morning, Asian equities are starting the month on a positive tone. The China Caixin manufacturing PMI (51.8) was better than expected, indicating a further bottoming might be developing. USD/JPY rallied after the release but struggles to maintain early gains. The yuan is little changed near USD/CNY 7.03. In Germany, Chancellor Merkel’s coalition party, the SPD, voted for a left-wing leadership which might question the balanced budget approach. The bund future declines (higher yield) but for now with little impact on EUR/USD (1.1015 area).
Today, the calendar contains the final EMU November PMI’s and the US manufacturing ISM. For the ISM, a rise from 48.3 to 49.5 is expected. Comparable measures in other major economies (EMU, China) recently showed tentative signs of bottoming. The ISM might join this move, we doubt to already see a big upward surprise. The SPD leadership change will have no immediate impact on German government spending. Even so, we look out for the reaction of German yields. Anticipation on a potential future fiscal loosening might raise yields and in theory could be euro supportive. Admittedly it remains a (very) long call.
Last week, the euro stayed in the defensive, even as EMU data weren’t too bad. The 1.0989 support was extensively tested, but no sustained break occurred. Even so, the EUR/USD picture remains fragile. A drop below 1.0989/81 would bring the 1.0879 correction low in the radar. A return above 1.11 would call off the ST downward alert.
On Friday, EUR/GBP still held a tight sideways range in the lower half of the 0.85 big figure. The terrorist attack in London had little impact on trading. Some polls this weekend showed a slight decline in the lead of the conservative party. Sterling is losing a few ticks this morning. We expect sterling to stay strong as long as a Conservative majority remains to most likely scenario. Any comments from US president Trump (in London for the NATO summit) might cause some ST jitters.
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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