KBC Market Research Desk
KBC Bank
The dollar made some wild and very remarkable swings yesterday. US CPI printed higher than expected, but retail sales posted at big miss. US yields and the dollar jumped higher immediately after the release. US yields held their gains setting new cycle peaks, but the dollar reversed course soon. An initial decline in equities attracted bottom fishers and kick-started an impressive risk-rebound, despite poor retail sales. This risk rally also hammered the dollar. EUR/USD jumped from the high 1.22 area to close the session at 1.2451. Even USD/JPY remained under pressure despite higher core yields and the equity rally! USD/JPY finished the session at 107.01. The ‘usual correlations’ didn’t work at all.
Positive risk sentiment and the dollar decline remain at play overnight. Several markets (China, Korea) are closed for the Lunar New year. Japanese equities remarkably joined the global risk rally despite a further decline of USD/JPY and poor December machine orders (-11.9% M/M). USD/JPY is trading in the mid 106 area. EUR/USD trades in the 1.2465 area holding near the overnight peak. The risk rally at least eased the decline of EUR/JPY. The pair hovers in the mid 132 area.
The US eco calendar is again well filled today with Empire manufacturing, Philly Fed business outlook, jobless claims, industrial production and, last but not least the PPI data. Sentiment indicators and activity data are expected to confirm decent growth. PPI is expected to rise 0.4% M/M, but decline from 2.6% to 2.5% on a yearly basis. Good eco data and/or an upward surprise in PPI might reinforce the rise in US yields. However, considering yesterday’s price action, it is unlikely to change fortunes for the dollar. The repositioning on equity markets and technical considerations are probably more important. At least for now, risk sentiment correlates with a further decline of the dollar. In this move we also keep an eye at the technicals. EUR/USD is nearing the 1.2537 correction top. A break above this level would signal more trouble for the dollar. We don’t see a fundamental reason for EUR/USD to already break this level, but this is not a good enough reason to row against the tide. The dollar is a falling knife. A return below 1.2206 would be a first sign, that the USD sell-off easing.
UK retail sales are expected to rebound 0.6% M/M and 2.4% Y/Y after a sharp setback in January. We doubt that even better than expected data will be a big help for sterling. EUR/GBP holds the 0.8690/0.9033 range, with intermediate resistance at 0.8930. We hold our view that the 0.8690 support 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.
Recommended Content
Editors’ Picks
EUR/USD clings to gains near 1.0700, awaits key US data
EUR/USD clings to gains near the 1.0700 level in early Europe on Thursday. Renewed US Dollar weakness offsets the risk-off market environment, supporting the pair ahead of the key US GDP and PCE inflation data.
USD/JPY keeps pushing higher, eyes 156.00 ahead of US GDP data
USD/JPY keeps breaking into its highest chart territory since June of 1990 early Thursday, recapturing 155.50 for the first time in 34 years as the Japanese Yen remains vulnerable, despite looming intervention risks. The focus shifts to Thursday's US GDP report and the BoJ decision on Friday.
Gold closes below key $2,318 support, US GDP holds the key
Gold price is breathing a sigh of relief early Thursday after testing offers near $2,315 once again. Broad risk-aversion seems to be helping Gold find a floor, as traders refrain from placing any fresh directional bets on the bright metal ahead of the preliminary reading of the US first-quarter GDP due later on Thursday.
Injective price weakness persists despite over 5.9 million INJ tokens burned
Injective price is trading with a bearish bias, stuck in the lower section of the market range. The bearish outlook abounds despite the network's deflationary efforts to pump the price.
Meta takes a guidance slide amidst the battle between yields and earnings
Meta's disappointing outlook cast doubt on whether the market's enthusiasm for artificial intelligence. Investors now brace for significant macroeconomic challenges ahead, particularly with the release of first-quarter GDP data.