KBC Market Research Desk
KBC Bank
EUR/USD was well bid yesterday. The couple eked out gains as investors avoided excessive USD long exposure ahead of a cautious expected Fed meeting (tonight). At the same time, euro buying found support in a positive surprise of Germany's ZEW confidence (expectations component) and an overall constructive risk climate. However, the latter was shaken by conflicting reports on trade later on. Some US officials are concerned China is resisting US demands. China also stepped back from earlier trade promises it made, saying they do so because there haven't been any assurances from the US that tariffs would be lift. The EUR/USD uptrend stalled. The pair closed at 1.1352 (from 1.1337). USD/JPY closed a choppy trading session stable at 111.39.
Asian markets are trading mixed this morning. Chinese equities underperform following the trade reports. The Chinese yuan opened slighty lower but has recovered most losses soon after. The Aussie (AUD/USD 0.708) similarly staged a turnaround after slipping as the RBA said that risks to financial stability have become "elevated". Minutes of the BoJ showed disagreement among its members over monetary easing. One member said the BoJ should avoid market expectations of no change in policy to be fixed to "an excessive degree". USD/JPY is trading at 111.55, up from 111.40.
Today's economic calendar is extremely thin. The Fed meeting tonight will have market's undivided attention. We expect the central bank to reduce its anticipated 2019 rate hikes from 2 to 1 with no hikes penciled in for 2020 (vs. 1 in December). Powell will probably also announce the end of the balance sheet run-off by the end of the year. We believe the dollar at the current levels has discounted a soft Fed. That might result in sideways EUR/USD trading ahead of the Fed with some risks of profittaking afterwards. More so because any further sustained rebound in EUR/USD probably needs better EMU data first.
Sterling entered calmer waters yesterday after the UK's Speaker of the House thwarted May's brexit strategy. Markets are now awaiting the PM's next steps which would consist of asking the EU to extend the deadline. Reports suggest she seeks at minimum a 3m extension. It is unclear however how the EU will respond at the summit tomorrow. We don't expect the brexit process to be clarified soon and stay cautious on sterling. The 0.8490/0.85 area might become a ST floor for EUR/GBP.
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
AUD/USD risks a deeper drop in the short term
AUD/USD rapidly left behind Wednesday’s decent advance and resumed its downward trend on the back of the intense buying pressure in the greenback, while mixed results from the domestic labour market report failed to lend support to AUD.
EUR/USD leaves the door open to a decline to 1.0600
A decent comeback in the Greenback lured sellers back into the market, motivating EUR/USD to give away the earlier advance to weekly tops around 1.0690 and shift its attention to a potential revisit of the 1.0600 neighbourhood instead.
Gold is closely monitoring geopolitics
Gold trades in positive territory above $2,380 on Thursday. Although the benchmark 10-year US Treasury bond yield holds steady following upbeat US data, XAU/USD continues to stretch higher on growing fears over a deepening conflict in the Middle East.
Bitcoin price shows strength as IMF attests to spread and intensity of BTC transactions ahead of halving
Bitcoin (BTC) price is borderline strong and weak with the brunt of the weakness being felt by altcoins. Regarding strength, it continues to close above the $60,000 threshold for seven weeks in a row.
Is the Biden administration trying to destroy the Dollar?
Confidence in Western financial markets has already been shaken enough by the 20% devaluation of the dollar over the last few years. But now the European Commission wants to hand Ukraine $300 billion seized from Russia.