KBC Market Research Desk
KBC Bank
Follow-through euro buying in the wake of better than expected EMU PMI's kept EUR/USD on an upward trend yesterday. The couple was little affected by a further deteriorating German Ifo business climate (97.4). It found support in narrowing US/German yield spreads instead as prospects of Fed rate cuts continue to weigh on US yields. Together with more sideline dollar positioning ahead of the G20 at the end of this week, EUR/USD's advance stopped short of capping the 1.14-handle (1.1399, up from 1.1369). USD/JPY oscillated near opening levels and eventually closed virtually unchanged at 107.30.
Sentiment in Asia dented this morning. Geopolitical tensions rise after the US initiated a new batch of sanctions on Iran's supreme leader and other top officials. Iran's foreign ministry said that any new sanctions "mean the permanent closure of the diplomatic path with the US". Trump is also said to consider withdrawing from post-war Japan defense pact that he thinks treats the US unfairly, adding more jitters to an already fragile trade environment. EUR/USD holds up well however, trading close to 1.14. The Japanse yen profits with USD/JPY slipping below 107.
Economic data is rather scant today. The US Conference Board consumer confidence is expected to decline from 134.1 to 131 in June. Risks are tilted to the downside due to a sharp increase over the two previous months. The poor payrolls earlier this month strengthens our case for a negative surprise of this labour market sensitive indicator. We therefore expect the dollar to remain in the defensive in the run-up to an important speech by Powell this evening. Will the Fed chair confirm markets view of a July rate cut? If he does we might witness the dollar (and US yields) to edge lower. EUR/USD recently regaining the 1.1350 area improved the technical picture in this cross rate. Next resistance is seen in the 1.1450 area.
The pound lost additional ground during a mostly technical trading session yesterday with EUR/GBP closing at around 0.895. The Tory leadership campagne is gaining traction; debates between Johnson and Hunt are thorny. Given the high amount of political uncertainty we see little reasons for sterling to strengthen significantly even as Johnson's lead over Hunt decreased. We expect EUR/GBP to hold rather strong.
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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