KBC Market Research Desk
KBC Bank
Yesterday was some kind of a ‘classic risk-on session' on global markets. (Some) investors reacted to tentative signs that the coronavirus could reach its peak in Europe (maybe in the US) in a not that distant future. The trade-weighted USD stabilized (close 100.68), but the risk-on didn't cause a big USD selling yet. USD/JPY even profited from the risk-on. Interest rate differentials also moved in favour of the US dollar but it probably was only of second tier importance for USD positioning. EUR/USD tested the recent lows (1.0770/75 area) intraday, but closed little changed at 1.0793. Still, the euro performance euro was mediocre compared to other risk-sensitive currencies like the Aussie dollar.
This morning, most Asian equity indices are in positive territory, but gains are modest given the WS rebound yesterday. The Japanese government announced an extra budget of JPY 16.8T. The yen is gaining modest ground, probably also as US equity futures show a mixed picture. The yuan is trading slightly stronger this morning, even as the PBOC took several measures to ease monetary conditions of late (USD/CNY 7.0770 area). The RBA as expected left its policy unchanged (policy rate at 0.25%). The Aussie dollar remains well bid after the meeting as the tone of the statement/comments was balanced (AUD/USD 0.6150 area). EUR/USD also tries to rebound from the 1.08 area.
Today, the eco calendar stays thin. Global sentiment and headlines on the Meeting of the EU Finance Ministers will to set the tone for trading. We assume most of the EU response will come within the established framework (ESM etc.). Some additional measures/steps to be financed on an EU level could support sentiment and the euro. Still, the outcome as usual might be balanced and quite complicated. Last week, EUR/USD falling below 1.09 deteriorated the technical picture. The pair tested 1.0775/70 support, but no sustained break occurred. The March low comes in at 1.0636. We also keep an eye on the trade-weighted dollar. The US currency might remain well bid, but we see no compelling reason for a break beyond the top near 103. EUR/USD rebounding above the 1.0950 area would be a first indication that downside pressure is easing.
Yesterday, the sterling initially remained rather well bid. EUR/GBP even returned to/below the 0.88 area. However, the UK currency lost some ground on headlines that UK PM Johnson had been moved to intensive care. Some consolidation in the 0.8750/0.90 area might be on the cards.
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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