The dollar rebounded further on Friday as solid US data (including better than expected April/May US retail sales), made investors realize that already quite some dovishness is discounted ahead of Wednesday's Fed meeting. The rise in US yields was modest, but the dollar regained substantial further ground. At the same time, investors were pondering the chances of further ECB easing if needed. EUR/USD made a further step south closed at 1.1208 (from 1.1276). USD/JPY finished at 108.56.

This morning, most Asian equity markets are trading mixed, with Hong Kong outperforming. The dollar shows no clear trend. EUR/USD regains a few ticks (1.1215/20 area). USD/JPY is holding strong (108.60 area). The yuan (USD/CNY 6.9240) is holding near lows against the dollar. The Aussie dollar still struggles not to fall below the 0.6865 support area.

Today the focus will be on the US data. The Empire manufacturing survey is expected to ease to 11 from 17.8 after a strong rebound last month. The NAHB housing index is expected to rise from 66 to 67. Today's data probably won't change the US eco picture in a profound way anymore ahead of the Fed meeting. This evening, ECB's Draghi will give an introduction at the Sintra ECB forum. Geopolitics including the US-China trade dispute remain a wild card, but apparently there is a period of temporary calm as parties involved are considering strategy options in the run-up to the G20 meeting.

Friday's EUR/USD correction marked the end of recent upside test, putting the pair back the 1.11/1.1350 ST range. Dollar bears first want clarity on how far the Fed has moved toward starting an easing cycle. At the same time, soft ECB talk continues to weigh on the euro, too. We assume order-driven technical trade in EUR/USD ahead of Wednesday's Fed meeting. EUR/USD is testing the 1.1200 intermediate support. A break below, might at least be as much a sign of deteriorating sentiment on the euro, more than outright USD strength. EUR/GBP hovered near the 0.89 level last Friday as investors awaited the next steps in the race for the leadership of the conservative party. At the TV-debate this weekend, contenders for the Conservative party leadership even discussed the option of limiting the room of manoeuvre of Parliament blocking a no-deal Brexit. The debate suggest that uncertainty will persist, even after a new PM is put in place. Of late, the decline of sterling slowed, but the rising chance of nodeal Brexit, probably prevents a sustained rebound short-term.

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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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