KBC Market Research Desk
KBC Bank
The dollar maintained a positive momentum yesterday morning, but dynamics eased during the day. Some EUR/USD follow-trough selling occurred after the break below 1.2323. EUR/GBP selling after the BoE pushed EUR/USD to an intraday low in the 1.2215 area. From there, the euro decline/USD rally stalled, despite risk aversion. EUR/USD returned higher in the 1.22 big figure and closed the day at 1.2247. The return of volatility finally also triggered yen buying. USD/JPY dropped below 109. EUR/JPY tested 133 support, but a sustained break didn’t occur. The moves in the FX majors stay modest given the swings on other markets.
Risk aversion still dominates Asian trading. Regional indices are losing up to 5%. Japan slightly outperforms. USD/JPY dropped temporary to the 108.50 area, but aggressive BOJ bund buying reinforces the Bank’s will to maintain an easy policy, slowing the rise of the yen. USD/JPY trades again around 109. EUR/USD is going nowhere in the 1.2250 area. The yuan stabilizes after yesterday’s correction against the dollar.
There are no important data in the US and Europe today. So, global factors will continue to dominate FX trading. Of late, the swings in the major USD cross rates were modest given the turmoil on other markets. The combination of higher core yields and an aggressive risk-off finally turned out USD positive. That said, the safe haven appeal of the dollar was far from impressive. It more looked like some cautious by default USD buying. We assume that this pattern can continue as long as the current global repositioning continues. Technical picture: the dollar decline slowed of late and EUR/USD finally dropped below 1.2323/35 support. A break below 1.2165 would call off the ST downside alert (for USD). We continue to monitor the EUR/JPY price action. A further risk-off correction in EUR/JPY might also put downward pressure on EUR/USD. However, in this respect, yesterday’s price action was inclusive. The EUR/JPY decline was blocked at the key 133 support area.
Sterling jumped higher as the BoE indicated that rates will probably have to be raised faster than anticipated. Most of the rebound was reversed later as a new wave of risk-off repositioning weighed on sterling. Markets probably also realized that the Brexit-cliff isn’t out of the way. EUR/GBP closed the session only marginally lower at 0.8803. UK production and trade balance data will be published today. Yesterday’s price action confirmed our working hypothesis that the 0.8690 support probably won’t be easy to break without big progress on Brexit.
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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