Euro shows remarkable resilience

KBC Market Research Desk KBC Bank

EUR/USD initially held near 1.1285 yesterday despite soft comments of ECB's Draghi on Wednesday. There were no important EMU data. The US-German interest rate differential rewidened slightly in favour of the US currency. US jobless claims printed at a multi decade low and supported the intraday USD momentum. EUR/USD drifted off recent top (closed 1.1253). USD/JPY also rebounded (close at 111.66).

Overnight, Asian equities show no clear trend with China again underperforming. EUR/USD and EUR/JPY jumped higher. We didn't see specific news to explain the euro uptick. The move is said to be due to strong euro demand at the Tokyo fixing. EUR/USD is again trading in the 1.1290 area. USD/JPY gained a few tricks (111.75 area). Commodity related currencies like the Aussie dollar, the kiwi dollar and the Canadian dollar lost momentum yesterday as the oil rally ran into resistance. In its financial stability rapport, the RBA warns on additional risk to Australian households from elevated house prices. There was little negative impact on the Aussie dollar (AUD/USD 0.7135 area). Today, the EMU February production is expected to decline 0.5% M/M. The figure is outdated, but euro bulls might look for signs of bottoming after recent soft patch of the European economy. In the US, U. of Michigan consumer confidence is expected little changed after last month's rebound. First Q1 earnings from major US banks will set the tone for (US) equity trading. Earlier this week, the euro was remarkably resilient despite a soft ECB. Yesterday, EUR/USD declined (temporarily) due to overall USD strength. The jury is still out, but the overnight price action suggests that euro shorts remain in the defensive. At same time, the Fed's wait-and-see bias doesn't help the dollar. Last week, EUR/USD came close to the 1.1177/87 support, but a break didn't occur. For that to happen, big negative EMU news or surprisingly strong US data are needed. Recent evidence doesn't support this scenario. We keep the view that a sustained EUR/USD break lower isn't evident. In case of a break above 1.13, next high-profile EUR/USD resistance comes in at 1.1448.

EUR/GBP held a sideways consolidation pattern in the lower part of the 0.86 big figure. Markets are awaiting the next steps in the Brexit saga as the UK secured a delay on Brexit. Overnight, EUR/USD gains also spilled over into the EUR/GBP cross rate. There are no important UK eco data today. With the UK heading for a new period of domestic political uncertainty, we see no reason to turn more positive on sterling. We assume the EUR/GBP 0.85 support area to be solid.

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KBC Market Research Desk

KBC Bank

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