KBC Market Research Desk
KBC Bank
On Friday, EUR/USD profited temporarily from stronger than expected EMU PMI's. However, there were no follow-through gains. EUR/USD basically hovered in the 1.16 big figure. Political noise in Germany and Italy caused ongoing investor caution on euro. Uncertainty on next steps in the US-China trade conflict also prevented investors to place directional bets in the USD or the euro. EUR/USD closed at 1.1651 (from 1.1604). USD/JPY finished the day little changed at 109.97.
Overnight, Asian markets mostly trade with a moderate risk-off bias. China outperforms slightly after the PBOC cut the reserve requirement ratio for some banks. The Yuan weakens further (USD/CNY 6.5320). At the same time, the trade conflict might move to a next phase. US officials and press reports indicate that the US will take action to prevent US technology transfers to China. Chinese companies might be blocked from buying US tech companies and the US might install controls on technology exports to China. USD/JPY is drifting further below the 110 mark (currently 109.50). EUR/USD stabilizes in the mid 1.16 area.
Today, German IFO sentiment will be published. A further decline might be a euro negative. Europe also still has to cope with several issues (migration) going into this week's EU summit. Next steps in the US-China trade conflict will continue to affect global market sentiment. Of late, rising trade tensions were often a negative for the euro rather than for the dollar (except for USD/JPY). In this context (data, European politics and trade tensions) we don't see much further upside fur EUR/USD. Last week, we advocated that any sustained EUR/USD comeback would be difficult for now, as investors still adapt positions to the ‘new' policy divergence between the Fed and the ECB as it became clear after the Fed and ECB meetings. End last week, EUR/USD rebounded of the 1.1510 support. This gave some temporarily relief to the euro, but we don't expect this move to go really far.
In technical trade sterling stayed in the defensive on Friday. EUR/GBP closed the session in the high 0.87 area. Thursday's ‘hawkish BoE voting' didn't help sterling much. There are few really important UK eco data this week. Assuming a cautious risk-off context, we expect no sustained sterling gains. Brexit noise will also likely persist. On the other hand, several BoE members (mostly ‘hawks') will speak this week. We assume more sideways trading in EUR/GBP near the 0.88 pivot.
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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