KBC Market Research Desk
KBC Bank
EMU and US data were mostly mediocre yesterday and didn't provide clear directional guidance for their respective currencies. Initially it looked that the euro could slightly outperform. The EMU composite PMI rebounded modestly. ECB members were not keen to provide concrete guidance on a new TLTRO program. The US durable orders and Philly Fed business outlook also reinforced the feeling that US growth might be over its peak. At first, USD-German interest rate differentials narrowed slightly as EMU yields rose. EUR/USD came within reach of Wednesday's ST top, but a real test didn't occur. Later, a further rise in US yields restored the balance. EUR/USD closed again little changed at 1.1336. USD/JPY also held in well-known territory, closing at 110.70.
Risk sentiment in Asia initially turned more cautious overnight as investors await more concrete news from the US-China trade talks. Japan core inflation (ex fresh food 0.8% Y/Y) rose marginally, but didn't change the prospect for monetary policy or for the yen. USD/JPY is trading near 111.75. EUR/USD is also going nowhere (1.1340 area). The kiwi dollar (NZD/USD 0.6775 area) remains under pressure. The RBNZ indicated that tighter monetary conditions due to higher bank capital requirements, if necessary, might be counterbalanced by a rate cut. Today, there are no US data. In Europe the final German Q4 GDP and German IFO confidence are interesting. Several Fed governors will speak, mostly after the close of European markets. Yesterday, EUR/USD rose temporarily as the EMU PMI's were not that bad. A similar reaction is possible in case of a decent IFO. However, with several ‘global issues' issues still clouding the eco outlook, it is unlikely to kick-start a clear directional EUR/USD move. Fed members speaking the balance sheet is USD wildcard. EUR/USD rebounded off last week lows but euro sentiment remains fragile. Of late, we assumed progress on trade issues and better EMU data are needed for a more protracted EUR/USD comeback. There are hopeful signs on trade, but the jury is still out. EUR/USD 1.1216 marks the Nov low. EUR/USD 1.1187 is 61% retracement (2016 low/2018 top).
The sterling price action more or less followed the tone of the Brexit headlines yesterday. Sterling resilience prevailed, but initial intraday gains evaporated as the hope in a ‘quick' solution was said to be over-optimistic. EUR/GBP closed little changed at 0.8692. This morning's headlines suggested that the EU preparing for a three-month Brexit delay. Of late, markets tended to be positioned for a scenario that a no-deal Brexit could be avoided. This hope helped to put a floor for sterling, despite plenty of Brexit noise. EUR/GBP 0.8621/17 is key MT support.
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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